‘Which Entity Should I Use?’ Property Management Insight

When you own real estate investments in Utah that generate income to build your future, one mistake or bad renter can ruin your long-term wealth goals.

Investors never know when a disaster or severe maintenance issues could lead to expensive repairs and a loss of rental income. If a potential renter sues you for discrimination, losing the claim could impact your rental property businessand your personal incomewithout the right structure to protect your business.

Protecting your properties and income becomes increasingly important as you grow a more profitable portfolio. Just like screening for better renters helps protect your rentals from bad residents, setting up the right business entity protects your properties and investment income while keeping your private assets separate.

Which entity should you set up for your rental properties? Here’s the insight investors need from the best property management company.

While this article isn’t meant as a substitute for legal advice, investors can keep these tips in mind when determining how to set up their rental business. Consult your attorney, and if you need more insight, reach out to Reeder Asset Management! 

Choose Something

Your properties and income are vulnerable without a business entity designation. However, choosing the right entity can feel overwhelming if you’re not familiar with your options or what might work best for your portfolio.

  • The right entity might not be the same for every real estate investor.
  • Don’t let a lack of knowledge keep you from choosing something to protect your business.
  • Feeling confident that your business will never experience any pitfalls isn’t a good reason to skip the business incorporation process, either.

Something is better than taking your chances without the protection of an entity for your rental properties. So, what are your options?

LLC Limited Liability Company Business strategy and technologyA Limited Liability Company (LLC)

Many real estate investors choose a Limited Liability Company. It’s one of the simplest ways to incorporate your investment property business and maintain control over your operations without the oversight of a board or strict government requirements.

  • In Utah, investors will need to file an annual renewal and follow the rules for maintaining an LLC.
  • You’ll also need a business license and an EIN (Employee Identification Number) if you have more than one employee.
  • However, these requirements are small prices to pay for the protection benefits of an LLC.

If you face a renter lawsuit or other potential harm to your business, your personal assets stay safe from any financial liabilities. An LLC helps protect one rental property or multiple properties as you grow your portfolio. Be sure to work with a Utah attorney familiar with setting up an LLC and maintaining your business under this type of incorporation.

Property management companies can also help you with paperwork, financial reports, and how to operate your property legally under the protection of a Limited Liability Company.

An S Corporation

If your real estate investment company starts growing significantly, an S Corporation could be a better option. This type of business entity must follow stricter government requirements and reporting protocols. However, if you expand your business to include shareholders, choosing an S Corporation can help during tax time—or if you face a lawsuit from an unhappy renter or vendor.

Explore your options to set up the entity that works best for you. The right legal team can make sure you stay on top of paperwork, fees, reporting, and payouts to shareholders as needed.

Minimizing Risk Boosts Your Success

Even if everything is going well with your rental properties, investors experience more success by minimizing risks. Skipping the business entity process is like rarely brushing your teeth while hoping you don’t get a cavity. You might go years without a cavity, but eventually, your luck will run out if you don’t change your oral hygiene habits.

Cropped view of risk manager covering house model surrounded with wooden blocks with handReal estate investors must take advantage of every type of protection to minimize rental income loss and maximize income. The most successful investors:

  • Set up the right insurance coverage to protect against rent income loss, disasters, and bad renters
  • Hire excellent property management to screen residents and provide professional maintenance services
  • Choose a local attorney with real estate investment experience
  • Don’t delay the incorporation process to set up and protect their rental property business and separate personal assets

Making a mistake during the renter screening process can lead to a discrimination lawsuit that wipes out your rental property business and personal savings.

When a property manager handles your screening process, and your rental properties sit safely within an LLC or S Corporation, you experience less risk of a lawsuit—and you have business protections in place if a claim doesn’t work out in your favor. 

Get Expert Help to Protect Your Rental Properties!

We always recommend seeking legal counsel when evaluating the best incorporation options for your real estate investments. Property management services aren’t a substitute for legal advice—but we can help protect your properties! 

No matter which entity you choose, Reeder Asset Management is here to help screen quality renters, provide professional rental property maintenance, and assist with financial reporting. These are just some of the reasons why working with full-service property management is an easier way to grow your portfolio.

Learn more when you download your free copy of our guide to real estate investing in Utah!

Posted by:
Reeder Asset Management on January 28, 2021