Deciding which entity to use for your real estate investments is a very important decision. It’s a wise move to speak with a real estate attorney in your state to be sure that you are getting the best and most appropriate advice available. You should also speak with your financial and tax advisors before you make this leap. The next step, before going to the appointment you have made with your two advisors, is to make sure that you know everything you need to know about the properties in which you are going to invest. You will need to share with them in what types of properties you are going to invest:
- a coop
- a condo
- commercial property
- under-developed land
- multi use property
More often than not, your support team is going to suggest that your entity be an LLC. The reasons a limited liability company is good for real estate investors are:
- Being eligible for Section 1031 tax deferred exchanges and for estate planning
- As a member of the LLC, you cannot be held liable for more than the amount of your capital investment
- There are less “legal formalities” than some other corporate structures
- You can choose to have your LLC taxed like a “partnership” or any other pass-through entity where member are taxed individually for any income or losses
And, on the subject of advisor teams, before you begin your journey into real estate investment, it is very wise to find a mentor. In this case, a mentor would be someone who is in the real estate business; who has invested in real estate, preferably in the kind of real estate in which you are going to be involved; and who actually has the time to interact with you.
Who is that person? How do you find him or her? Now these are the important questions. In most cases, your mentor is somebody you already know. He may not be your best friend, but you know this person. Maybe it’s your next-door neighbor who is always looking at available properties; who has bent your ear for years about the fun of flipping a house. Could be you have a relative who is an investor. It might even be a friend on Facebook, you never know.
Do I need to pay this person? In most cases that is not how mentoring works. Any person whom you would like to teach, train, and talk with you is not going to be doing this work with you for a payment. They are going to do this because someone else did it for them. They are going to do it because it makes them feel good to help another person who is just where they were when they started. They are going to do it because they see something in you that makes them know you are serious and you have the smarts to make it work.
So, what you need to do is:
- Put yourself in the same space where the experts are.
- Be available to the person you would like to have help you.
- Build a relationship with this person based on your admiration for him.
- Show him that you are worthy of being mentored by him.
- Don’ start the relationship with a promise that you will repay the time and effort your mentor is going to invest in you when you reach the top of the investment ladder. First, anyone wise enough to be a mentor is not going to put any stock in whether you are going to make it or not. Secondly, most mentors wouldn’t hear of such a thing. If they are the mentor you would like to have, they have been a mentor before, so they know how difficult this line of work can be. Just be gracious, and when you make it, pay it forward.