Different Types of Entity Structures for Acquiring Real Estate
What are the different types of legal entities for acquiring and holding mobile home park investments?
There are a variety of corporate and legal structures for mobile home park investors to take advantage of. Each investor’s situation and goals are unique. So before deciding which to use it is important to consult your attorney and accountant in order to receive professional legal and financial guidance on the right match for your needs and goals. This overview is purely designed for informational purposes.
4 Types of Entities to Choose From
A limited liability company (LLC). A LLC is a type of hybrid entity; combining features of corporations and partnerships. While each jurisdiction is different LLC’s can generally select how they want to be classified for tax purposes, including passing through income to be taxed as individuals, not corporately.
LLCs have gained significant traction and credibility. A review of Propertyshark data on prime Manhattan real estate transactions shows high profile investors and funds almost exclusively using LLCs as their preferred entity for multimillion dollar deals. When Mark Zuckerberg recently announced he would be giving away $45 billion (99% of his wealth) for good, he chose an LLC to do it.
Limited partnerships (LP) are commonly used in real estate, film production, and private equity ventures. The world’s largest alternative investment firm Blackstone operates as an LP. This can be a frequent choice when different partners are bringing different assets to the venture. For example; labor and expertise from one partner, and capital from others. Wikipedia traces the roots of the limited partnership back to the Roman Empire, Islamic law, and the Napoleonic Code.
An S Corporation is often considered a hybrid of a corporation and partnership. These small business corporations can pass through their gains and losses to individual shareholders for tax purposes. Some jurisdictions may charge additional franchise taxes. An S corporation cannot have more than 100 shareholders. Note that there can be a window of opportunity for owners to switch status between S Corp. and C Corp. status.
A C corporation is most notable different in that it is taxed separately from the owners under corporate tax rates. Although this may be the most commonly known legal structure for businesses, for taxation reasons it may be reserved for larger operations with more shareholders.
Misc. Options and Variations
Beyond the above there may be other subsets of these entities depending on where you are incorporating, and how many owners there are. Then there are various trusts, domestic and foreign entities which may have their own pros and cons. Make sure you know the limitations, freedom, and taxation rates as they apply to you, and your real estate endeavors in your specific areas before making a decision.
Again, this is a choice as unique as your individual goals and strategy.
This is not meant as legal or tax advice. Consult your own legal and tax professionals to make the right choice for you.