Why Real Estate Professionals NEED A Business Entity

business-suit

As an independent real estate agent, have you considered setting up a business entity? As a real estate investor, why is it important to hold your investments in a business? Running a business without a business entity is like going to work without clothes. On the other hand, having a business entity is like going to work in a suit.

 

OVERVIEW

Real estate professionals can be independent or non-independent real estate sales agents, real estate brokers, real estate investors, or real estate owners. In general, there are 3 business entities suitable for real estate professionals: C-Corporations, S-Corporations, and LLCs.   

 

LIABILITY AND PRESENTATION

A business entity is like a suit for your business. When real estate is an “on-the-side” hobby or interest, having a business entity may not be important. However, when real estate becomes your “primary” profession or when you have accumulated enough investments in your portfolio, your presentation, representation, amount of risk and liabilities all become very important. Would you present your business as Mary Thompson, DBA: Mary’s Real Estate or Providential Realty, Inc?

 

In the world of business, real estate is constantly being bought and sold in transactions involving multiple parties for hundreds of thousands (or millions) of dollars. There are high potential liabilities involved, such as legal action from the buyer or seller, tax agency reviews, and state Bureau audits. Without having a business entity, your personal finance, retirement accounts, and even your home may be on the line as remedies for the liabilities and damages.
Therefore, having a business entity is like dressing in a suit. If anything happens, your suit (your business entity) is now protecting your body (you as an individual). You and your business are two separate entities. This is the first step toward being professional and staying protected. However, an unorganized business entity that is not reporting correctly is like a scruffy suit that doesn’t fit well… (Continues in Part 2)


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Daniel Lu

Daniel Lu - Certified Public Accountant

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