Blog

The High Cost of Not Incorporating Your Real Estate Company

Published on Wednesday - March 27, 2013

New real estate investors frequently put off incorporating their business or forming LLCs only to find it an extremely expensive mistake later on. So is it really worth it to register your real estate company, and how bad could the penalties of waiting really be?

Many real estate education programs touch on forming an LLC for real estate investing, but many investors drag their feet seeing it as just being an additional step and extra expense. Of course you can flip houses or add rental properties to your portfolio all day without officially registering a real estate investing company with the state, but it has become so cheap and easy to do today that it is almost insane not to.

In most cases, real estate investors can now file corporations of LLCs online with their state in a matter of minutes and for less than a couple hundred dollars. When you look at some of the basic advantages this provides in terms of privacy, branding and additional tax protections it easily pays for itself many times over within the first year for most investors.

Perhaps the biggest benefit of setting up an LLC is the liability shield it offers. This defends business assets and income against personal crises like divorce and lawsuits stemming from auto accident scams, and in the reverse ensures that if business goes bad, your personal savings and assets are sheltered from malicious and frivolous opportunistic lawsuits.

If you haven’t incorporated, you run the risk of being taken for everything you’ve got whether you’ve done anything wrong or not. You can’t just quitclaim deed everything into a corporate name while being sued and expect it to be safe. The same goes for mixing real estate investments, personal income and assets, and attempting to claim the limited liability of a company. In these cases lawyers can easily pierce the ‘corporate veil’ and disqualify it.

So to protect your business and maximize your profits, organize early, keep it clean and consider incorporating your real estate company.

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