Recently, our articles here at Gulf Coast Property Management have primarily been focused on:
- How to begin a real estate portfolio in the Gulf Coast area
- How to grow that portfolio sustainably with the right rental property and connections
- How to protect your investments before, during, and after you acquire them as a property owner.
However, it's this last topic we want to explore in a bit more depth today—particularly the 'before' bit.
We've discussed many times in the past how your lease agreement protects you as a property owner. However, there's a step you can take to safeguard your future income before you ever begin acquiring investment properties in the first place. This step requires you to dive into the legalities of setting up a business entity—but it's all worth the hassle.
Fortunately, if you take this step under the guidance of skilled Punta Gorda property management before you ever even START acquiring properties, you'll have an advantage. It's much easier to add rental properties to a business entity during the purchasing process than to add them after the fact to a real estate entity you have yet to create!
Let's approach this topic with a bit more depth and give some insight into how this crucial step in forming a successful real estate portfolio is not to be ignored.
Foreword: The following article is not a substitute for legal counsel. If you need immediate help with a pressing issue, turn to a competent attorney or Gulf Coast Property Management for real-time assistance!
Why You Need to Choose a Real Estate Entity
If your ultimate goal for acquiring rental homes in the Punta Gorda area and along the Gulf Coast is financial security and independence, you won't be able to realize this goal without some stiff legal protection! The right real estate entity is designed to serve this purpose: without it, you won't have the safeguards you need to prevent an attack on your rental business from reaching you directly.
That said, you'll need to give some serious thought to the matter of how you want to structure your new (or existing) business! There are a few different options to choose from in this regard that may best benefit you depending on what your desires and aspirations are as a rental property owner. However, when you boil it down, the most important takeaway from today's article is that you should at least have your sights set on SOME form of protection.
The overarching purpose of your real estate entity is to protect your business in the event of a worst-case scenario that would otherwise end up targeting your personal assets as well.
So, Which Real Estate Entity Should You Set up for Your Business?
Once you get past this basic understanding, there are some key questions you can ask yourself to determine which type of entity is right for your needs:
- How big of a concern are taxes for you as an investor?
- What are your specific concerns regarding liability or loss?
- How do you want to structure your portfolio and business?
- How many people will be working with you directly as owners?
- How much effort do you want to expend to create a business entity?
Depending on your answers to these questions, you may find yourself selecting from either a:
Before you select from any of the above based entirely on what you've read online, it's best to consult with your attorney or trusted Punta Gorda property management partner to get a better idea of which direction—and entity—will best benefit your portfolio.
'Which Entity Tends to Be the Most Popular?'
We see this question get asked from time to time: the logic is that if the majority of your peers are using one entity over the other, then it must be ideal for real estate, right?
This is actually a potential trap for rental property owners in the Punta Gorda rental market: just because one entity is chosen more heavily than others doesn't mean it will contribute to YOUR individual success. For example, Limited Liability Companies (LLCs) tend to be the most popular pick for beginning investors aside from Sole Proprietorships.
That said, plenty of investors also give up on real estate within the first five years! That's not to say it's solely due to their choice of real estate entity, but it can be caused by their expectations. Don't let the decisions of 'the pack' determine what you do with your plans. Insight from other investors can be great advice—but ultimately, the choice you make will depend on a combination of factors unique to your needs as a property investor.
It's All Part of Growing Your Portfolio Successfully
No matter which entity you decide is right for you; it's crucial that you, as a property owner, choose SOMETHING to separate your business assets from your personal life. Lawsuits aren't always a case of logic so much as they are emotion: it would be terrible to have a former renter come after everything you own (and win) to satisfy a small mistake you made as a beginning investor.
If you need more support and advice for how to grow, turn to our Punta Gorda property management services as part of your trusted list of portfolio-building resources! We do so much more than offer advice on which single-family homes or multi-family units will be ideal for your new business entity.
You can learn more about the benefits of working with full-service property management to grow your portfolio when you download your free copy of our guide to real estate investing!