What Type of Entity Is Best for Investing in Real Estate?
Real estate has long been considered one of the best long-term investments – and sometimes it even makes a good short-term investment if the market is just where you want it to be. If you are contemplating investing in real estate one of the first factors you will want to consider is what type of entity is best for investing in real estate. While there is no right or wrong decision, your choice of entity will have an impact on your investment as well as on your overall financial health. Consulting with an experienced Pennsylvania real estate attorney is always your best option because you attorney can discuss how each entity will impact your unique situation; however, a broad understanding of the entities available and their pros and cons may also be beneficial.
- Sole Proprietorship – a sole proprietorship is by far the simplest entity to create and operate. The downside, however, is the possibility of personal liability and responsibility as well as potentially missed tax savings offered by other options.
- General Partnership – a general partnership is formed when two or more people agree to work together and share profits. The allocation of profits can be decided by the partners; however, all partners have equal liability for debts (including taxes) of the company. A partnership can also be dissolved rather easily which can be a beneficial attribute in some cases, though if you plan to invest in real estate which is usually a long-term investment you likely want the entity to survive as long as the investment.
- Hybrids/Variations – there are a number of “hybrids” or variations of the general partnership, most of which combine aspects of a corporation with those of a partnership. Entities such as a limited liability company, S corporation, and limited partnership often minimize a partner’s role in the company, thereby limiting the exposure to debts and liabilities as well. Of course, profit is decreased as well.
- Traditional Corporation – a traditional corporation is the most complicated to get off the ground and remains the most complex entity to operate. A board of Directors makes corporate decisions, removing the individuality that other entities offer; however, the corporation usually absorbs all liability for acts or omissions and is responsible for debts incurred by the company as well.
Ultimately, only you can decide which of these entitles is right for you and your fledgling real estate investment business; however, you should not make that decision until after you have consulted with an experienced Pennsylvania real estate attorney. Contact the real estate law attorneys at Curley & Rothman, LLC by calling 610-834-8819 today to schedule your free consultation.