Article Courtesy of Scott Smith Esq:
As millennials become more influential, the popularity of multi-unit properties have increased. These types of assets also tend to be more resistant to inflation that other residential properties. Because of these current trends in real estate, more investors are looking for multi-unit properties to add to their portfolio.
Investing in a multi-unit property is similar to doing so with any other real estate. In fact, many of the business principles you use with a single-family home apply to a multi-unit property as well. However, some differences deserve special consideration.
When it comes to the real estate investment, the underlying business structure you use should support multi-unit ownership. To do this, we recommend specific business models that work best with this type of ownership. Let’s take a look.
- Joint Ventures
If you are new to real estate investments, a Joint Venture (JV) arrangement may be for you. They are also great for individuals who prefer quick one-time deals. A JV allows multiple investors to pool their money while sharing the risks and profits. This means losses and gains are split between all of those who take part in the JV arrangement.
With a multi-unit investment, a JV arrangement is a logical choice. Not only do the units make the profits and losses easily divisible amongst the investors, but also it clearly defines the “rules” from the beginning. Because a JV is a one-time arrangement, you are not locked into the deal
for life. (Don’t like your partners? Never work with them again! Enjoyed them? Future collaborations are always possible too!)
- Limited Partnerships
A Limited Partnership, or LP, is useful if you are going to collaborate with only one other investor. (If you are one of our many Canadian clients, LPs may be your preferred real estate business structure in general due to tax incentives.)
LPs are flexible in many ways. For example, your “partner” can be almost anyone. This includes a fellow investor, a property manager, or anyone else. Because LP agreements offer you a lot of control, you want to make sure you get the most out of it. While we always recommend you speak with an attorney before forming any business entity, you definitely need to with an LP to ensure your needs are met.
- Series LLCs
A Series Limited Liability Company (LLC) is perhaps our most recommended structure because it is the strongest structure period. A Series LLC is extremely versatile; you can easily establish one with partners or on your own. Because they are scalable, you can separate each of your assets into a different Series LLC without having to pay additional fees. Series LLC also offers increased asset protection. (In some states, you can even place each unit into its own series!) This isolates other properties and your personal assets from lawsuits against one of your LLCs. Series LLCs also offer great tax benefits, such as pass-through taxation. They also streamline your business operations, making it easy to file taxes, manage your assets, and complete transactions.
The Right Business Structure for You
We know how crazy the world of real estate can be. We also understand how important a strong business structure is to managing and minimizing your risks as a real estate investor. To learn more, contact Royal Legal Solutions today to schedule a consultation.
Author Bio: Scott Smith has specialized in the most advanced forms of anonymous asset holding and litigation protection for real estate investors with experience in multi-million dollar lawsuits. His team provides effective strategies commonly reserved to the 20+ millionaire class to the average investor. Learn more about how Scott Smith’s can assist you with : Asset Protection For Real Estate Investors.