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How to Create a Real Estate Holding Company in 5 Steps

Jerry Norton

Jul 17, 2024

white-and-red houses

Maybe you have one real estate investment and you are just getting started in the game, or maybe you have several.

Either way, are you currently receiving tax benefits, liability protection, and a streamlined business approach with the way your real estate business is currently set up?

If not, you need to learn more about a real estate holding company.

Look, I get it: the prospect of starting a real estate company can be daunting. But it's far easier than it seems, and there's heaps of benefits that can not only protect your investment or investments; it can also protect your business.

If you're ready to learn more about a real estate holding company, including how to start one in 5 simple steps, keep reading!

What is a Real Estate Holding Company?

A real estate holding company is a legal entity that holds ownership of one or more properties.

Make sense?

Its primary purpose is to protect the assets, such as your real estate investing portfolio, all the while providing a structure for efficient property management and investment.

By centralizing ownership under a holding company, individuals can simplify decision-making processes and enhance overall asset management strategies.

If you've been in the real estate game for awhile, you may be familiar with LLCs.

So, how are holding companies different?

I'm glad you asked!

Holding companies are generally parent companies to LLCs or corporations. That being said, a holding company itself can be an LLC or a corporation. That's important to remember as we talk more in depth about the topic.

Now that we've broken down what a real estate holding company is, let's take a look at its benefits.

Benefits of Establishing a Real Estate Holding Company

Tax Benefits

By acquiring properties through a holding company, you can not only enjoy several tax deductions; you can also avoid double taxation.

Because LLCs are considered pass through entities, you can rest assured you won't experience double taxation.

Limits Personal Liability

Whether it's someone being injured on your property or something such as a leak causing damage to your tenant's belongings, you want to protect yourself in the event of a lawsuit.

A real estate holding company creates a legal barrier between the ownership of properties and your personal assets.

So, if someone files a lawsuit against your real estate holding company, the lawsuit will be against the company and not you as an individual, leaving your personal assets out of it.

Streamlined Management

If you have multiple properties, managing them can be half the battle.

With a real estate holding company, you can streamline the entire process, including finding and managing tenants, finances, insurance, property tax and more under one "roof", making it easier and less time consuming for your to manage.

Steps to Create a Real Estate Holding Company

If you're convinced you need a real estate holding company (you do!), then let's take a look at how to create one step by step.

Step 1: Choosing the Right Type of Business Entity

The first step in creating your real estate holding company is to choose the right type of business entity, the two most common options being Limited Liability Companies (LLCs) and Corporations.

So what's the difference?

It depends on the size of your current and expected real estate business.

LLCs provide flexibility, limited liability protection, a simpler management structure and allow for pass-through taxation, meaning the company's profits and losses are reported on your personal tax returns.

Corporations offer strong liability protection and are ideal for larger-scale operations.

Step 2: Naming Your Holding Company

Once you have decided on the type of entity, you need to choose a name for your holding company.

Keep in mind that when selecting a name, consider its uniqueness and whether it infringes on any existing trademarks or copyrights.

How can you do so?

It's simple: conduct a thorough search to ensure that your chosen name is not already in use by another company in the same industry with your local business registration office.

Step 3: Registering Your Business

After selecting a name, you will need to register your real estate holding company with your local state's business department, which can include filing paperwork, paying any required fees, and providing information about your business structure and ownership.

Step 4: Obtaining an Employer Identification Number (EIN)

Just like a Social Security Number, an Employer Identification Number (EIN) is a unique identifier for your business required for legal and financial purposes.

You will need an EIN for tasks such as opening bank accounts, filing taxes, and hiring employees.

I'll be the first to tell you that it's not as daunting as it may sound: obtaining an EIN is a straightforward process that can be done online or by mail through the Internal Revenue Service (IRS) through a basic application.

Step 5: Set Up a Business Bank Account

Once you have your EIN, the last step is to set up your business bank account and ensure that all transactions, including buying and selling properties, is done through this avenue.

Now you're ready to buy properties under your real estate holding account.

If you already have properties under your personal name, what can you do?

You can transfer them to your holding company with the help of a title company.

The Bottom Line: Real Estate Holding Company

There you have it: with numerous tax advantages, personal liability protection and the ability to streamline your business, a real estate holding company is worth the time and effort.

It's something that can make your business and your real estate career more profitable (and more protected) now and in the future.