Companies Putting Real Money In Cash
Companies Putting Real Money At Home
Companies Putting Real Money Inside

Key Takeaways

Let This App Pay You up to $83 When You Win Solitaire Games. Lots of us already play Solitaire on. He set up a network of shell companies, which helped him evade taxes and launder the proceeds of the Ponzi scheme. As is seen in many other high profile money laundering cases, one of the most foolproof ways to clean your money for safekeeping is to put it into real estate, and this is exactly what Davey attempted to do.

Starting a real estate holding company has become a time-honored tradition of today’s most prolific entrepreneurs. If for nothing else, there are few vehicles capable of protecting a new business owner both from themselves and the malicious intents of others.

Truth be told, a real estate holding company can be intimidating to first-time business owners, and for good reason. A holding is the legal foundation on which your entire company will be built. It is worth noting, however, that starting one is not as daunting as it may seem. Yes, it is integral to the start of a business, but that doesn’t mean you should be intimidated. Instead, investors should mind due diligence and embrace the many advantages a holding company can provide.

What Is A Real Estate Holding Company?

A real estate holding company is a legal entity designed to protect business owners from the risks that come with owning investment properties. Real estate holding companies, also known as limited liability companies (or LLCs), do not participate in business operations themselves but own different assets. The purpose of this structure is to essentially prevent business owners from being personally responsible for debts or other liabilities incurred by the entity, thus the name “limited liability.”

Although the enactment of LLCs can be traced back to the 1970s, real estate investors have largely begun to take an interest in the past decade’s benefits. They are now often used as a tool to reduce personal exposure to monetary and legal risk. Through a holding company, owning investment properties is also known to create significant tax benefits, and ease of administration when compared to other legal entities.

While real estate holding companies are not the only way to protect a business, most investors find the benefits to be the most accommodating. In other words, if you want to learn how to start your own business, it could not hurt to look into forming one for your protection.

Do Holding Companies Pay Taxes?

Holding companies do pay taxes, though they can vary slightly depending on the organizational structure. For example, a holding company with one business owner will typically be treated as a sole proprietorship. This means the entity itself is not required to file with the IRS, and instead, owners will need to report all profits (or losses) in their tax paperwork. A two-person LLC, on the other hand, will be treated as a partnership. This means each owner will be responsible for paying taxes on their share of the returns. For more specific information on how a holding company is taxed, be sure to consult a professional with any questions.

Holding Company Structure

Generally speaking, the holding company’s structure will look something like this: the holding company or LLC is at the top, and individual subsidiaries exist underneath it. For real estate, the subsidiaries will typically be investment properties. The holding company itself will not have a hand in day to day operations of each property but will instead serve as a parent company. There are several benefits to utilizing this structure, which we will discuss below.

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Real Estate Holding Company Example

An example real estate holding company may help illustrate what this business structure would look like. In this example, I want to start Business Holding Company, LLC. After I follow the necessary protocol (filing with the state, paying fees, etc.) I decide to purchase an investment property. The property will be owned under Business Holding Company, LLC, with a property manager in charge of operations.

Companies Putting Real Money In Cash

Let’s say I purchased an apartment complex before starting Business Holding Company, LLC. In this case study, I now want to move that property into my newly formed LLC. To do so, I would obtain a deed, file the necessary paperwork, and then transfer the property ownership. I would also update any documents that need to reflect the change in ownership, like tenant agreements and leases.

Now, I have two properties operating under Business Holding Company, LLC. The holding company’s balance sheet would then reflect the combined operating income, liabilities, and ROI. As an owner, I would be responsible for oversight and support. While this is an oversimplified example, it can serve as an overview of what a real estate holding company might look like.

Why Start A Real Estate Holding Company?

Setting up a real estate holding company has become increasingly popular in the last decade, and for good reason. By incorporating their businesses, real estate investors can gain access to unique benefits and enhance the long-term health of their businesses. Real estate holding company benefits include, but are not limited to, the protection of investors from personal liability, pass-through taxation, and the building of credit for your business.

Holding companies can protect business owners from liabilities and debts incurred by their properties.
A holding company prevents double taxation on investment properties.
The business structure allows investors to more easily manage their properties.
As a whole, LLCs pay less fees when compared to corporations.
Holding companies provide investors with more flexibility to distribute their profits.
Real estate investment company enables investors to purchase properties in the U.S. and abroad.
A holding company is more easily transferrable than other entity types.

Furthermore, those wondering how to set up a real estate holding company will be pleased to find out that they are relatively easy to register. The sections below will expand upon each of the main benefits, along with some of the lesser-known perks.

Limits Personal Vulnerability

Investing in real estate is a rather lucrative career choice. There is traditionally a lot of money involved in every deal—at least more than the average individual can cover on their own accord. Having said that, it is absolutely imperative for respective investors to protect their personal finances (those outside of their business finances). First and foremost, LLCs limit personal vulnerability to potential lawsuits related to the property, which is perhaps the most intriguing aspect of starting a holding company.

Any lawsuit against an LLC is aimed specifically at the company, not the individual responsible for it. If an LLC owned the property in question, the owner’s risk exposure would be insulated by the company’s protection, leaving only the assets owned by the LLC (as opposed to all of the owner’s assets) exposed to potential lawsuits. In other words, personal finances would not be in jeopardy.

Pass-Through Taxation

Assuming liability coverage is the most important factor in forming a real estate holding company, taxes are a close second. In fact, some real estate investors consider framing their business structure as an LLC based solely on tax benefits. Liability protection may be a bonus to some.

A 1988 court ruling enabled real estate investors to avoid double taxation by acquiring property through LLCs. As defined by the default tax classification rules, the Internal Revenue Service (IRS) classifies a real estate holding company with one owner, in the same way they would a sole proprietorship, otherwise more commonly referred to as a “disregarded entity.” Accordingly, any income and capital gains generated by the business would transcend to the owner, who, as a result, would only have to pay taxes as an individual. However, the respective owner still enjoys protection against liability. It is the best of both worlds.

Seeing as how there is no separate tax accompanying the formation of an LLC, business owners are in a position to avoid double taxation. Neither the rental income genera