Incorporating a Real Estate Business in the US
Most of the independent real estate agents think by belonging to a brokerage they are in a business organization. When a business operator has completed and submitted the W-2 and it has been approved, he or she is a dependent contractor. Therefore, an independent contractor is the sole possessor of a real estate firm operating as an exclusive proprietorship. It is essential for entrepreneurs to include a real estate business. When legal action is taken against you, it may affect you in one way or another.
A buyer will sue you when you misrepresent him or her during the purchase of the property. In the bargain, a seller can claim damages when they think you made them incur losses on a sale. When some of the terrible things happen, you will be liable in the account that your state’s real estate laws allow you to sign contracts in your name against the name of your broker. Due to this reason, most agents form a real estate LLC or corporation. In the event of incorporating a real estate business, you get numerous legal and tax benefits. You can always protect your individual property from any potential lawsuits and claim taxes in a diverse way.
Categories of Real Estate Businesses
Apart from beginning businesses as proprietors or brokers, real estate is chosen by most professionals as an investment. Real estate investments can cater to a specific goal, finances, and risks. Some well-known types of real estate businesses include wholesale – real estate wholesalers enter a contract to buy property, but they find another buyer willing to incur more cost to own the contract. For this type of real estate business to succeed, a buyer must be found quickly. Wholesale real estate poses fewer risks and needs less cash.
Flipping is also another kind of real estate investment. Television shows like Fixer Upper make flipping houses or buildings popular. Flippers purchase real estate that has damages and they repair the property then resell at a profit. Finally yet importantly is an investment that is a type of real estate business. Rental properties are excellent prospects for individuals who need long-term investment. Rentals normally bring a steady source of income. Nonetheless, some expenses such as mortgage, taxes, and repairs may result from rental properties.
Advantages of incorporating a Real Estate Business
Tax Deductions
Real estate businesses are fortunate due to the tax bill just passed by Congress. Real estate agents that assimilate and have an income above a certain level qualify for new tax breaks.
Personal Asset Protection
Most or all real estate agents are not full-time employees but they are contractors. After you integrate, real estate business will protect your assets if you enter contracts using your names. When you are flipping houses and renting them out, you need to be safe against any of your unsatisfied buyers or renters. Even though it is you are only renting out your vacation home, you can form an LLC to shield yourself.
Better Credibility
You are more credible and eligible when you are part of LLC or corporation. The very first step is ensuring you form an LLC or corporation. This will ensure you attract the rightful investors.
Key Elements to Consider Before You Incorporate a Real Estate Business
Laws in your state
Each state has a set of rules and real estate laws. In most cases, you will find some laws are similar in some states while at the same time some rules will differ. Certain states require real estate agents to create particular types of companies. A good example is Florida, as it requires real estate agents to form a Professional Association (PA) or a Professional LLC (PL). Therefore, it is advisable for you to confirm with your states’ license board what exactly you need.
Obtain an EIN (Employer Identification Number)
Before you incorporate a real estate business you need to obtain an employer identification number. Similar to the social security number, the EIN contains nine digits. It is used to identify businesses. The Internal Revenue Service (IRS) gives EINs and requires them for all LLCs, businesses having employees and corporations.
Consider an S Corp
An S Corp is very crucial in matters real estate business. With the increase in savings and tax flexibility, most of the independent real estate agents who assimilate create an S Corp. Business operators simply need to fill in form 2553 with an S election and send it to the IRS.
Update Your W-9 and Transfer Your License
Many of the real estate agents who integrate a real estate business renew their W-9 Form with their new entity name and bank account. To add to that, most of the people also choose to move their personal real estate license to their new LLC or Corp.
If you would want more information about incorporating a real estate business, get in touch with us. We shall do our best to get you all the relevant information about incorporating a real estate business in the US.
