Planning for a successful real estate business. Disclaimer The information in this presentation is intended only for general informational purposes. No.

Planning for asuccessful real estate

business

Disclaimer

The information in this presentation is intended only for general informational

purposes. No attorney-client relationship is intended by presenting this information. You should consult with your attorney and

accountant regarding your own circumstances.

Real Estate is a business

1. There are assets

2. There are contracts

3. There are government regulations

4. There are separate tax rules

5. There are big dollars at work

Build a Better BusinessBuild a Better Business

1. Select the correct business form

2. Operate the business correctly

3. Create a good succession plan

4. Utilize best practices

5. Make all planning work together

1. Selecting The Correct Business

Form – Issues to Consider

Limited liability

Tax minimization

Ease of use

Type of activity

Business entity options

Legal Entities

1. Corporation

2. LLC

3. Some Partnerships

Non-entities

1. Sole Proprietorship

2. Trust

3. Some Partnerships

Selecting The Correct Business Form -Corporations

Limited liability

Many terms set by law

Requires documents and filing

Tax options

Can be publicly traded

A legal person

Selecting The Correct Business Form - LLCs

Very flexible

A legal “person”

Requires documents and filing

Limited liability

Tax options

Selecting The Correct Business Form -Partnerships

Numerous variations

Essentially a contract

Some have limited liability

No tax options

Varying requirementsto form

Very flexible

Selecting The Correct Business Form – Sole Proprietor

Selecting The Correct Business Form – Sole Proprietor

• Can be done with an assumed name

• No need to file anything

• No liability protection

• No tax options

Selecting The Correct Business Form - Trust

Selecting The Correct Business Form - Trust

• Not a business entity – typically used for estate planning or other purposes

• Typically no limited liability

• Loss of control

• Complicated

• Usually no tax options

Selecting The Correct Business Form-The Bottom line

LLCs are far and away the most popular1. The most flexible tax options2. Flexible ownership options3. Flexible governance rights4. Limited liability5. Additional legal protections

Selecting The Correct Business Form – What About Joint Ventures?

Not a legal entity

Defined as “a commercial enterprise undertaken by several persons jointly.” Limited as to scope and duration but usually not as to liability

In other words, it is a contractual relationship that effectively creates a general partnership

Could be done with a business entity

Relationship should always be carefully defined and spelled out in writing

2. Operating The Business - Maintenance

2. Operating The Business - Maintenance

• LLCs, Corporations, and most Partnerships require regular maintenance

• Trust have varying rules on maintenance

• Sole Proprietorships do not require maintenance

Operating The Business - FinancesOperating The Business - Finances

• LLCs, Corporations, and Partnerships should have separate finances

• Sole Proprietorships can co-mingle funds

• Trusts impose fiduciary duties and co-mingling can be a problem

Operating the Business - Divided You Stand, United You Fall

If you own everything in one company or in your own name, one lawsuit can result in the loss of

everything you own

If you own things in separate companies, then only the entity involved in

the suit is at risk

3. Every Business NeedsA Succession Plan - Concepts

3. Every Business NeedsA Succession Plan - Concepts

• Business Succession Plan = Method to transfer the business from one owner to another

– Commonly include a buy-sell agreement

Every Business NeedsA Succession Plan - WhyEvery Business Needs

A Succession Plan - Why• Even new businesses need a

succession plan

– Do you want to be in business with your partner's spouse or children?

– What is your exit strategy?

– Protect yourself, your business, and your family from death or disability

4. Utilize Good Sales and Purchasing Practices – Know The

Facts

4. Utilize Good Sales and Purchasing Practices – Know The

Facts• Know your customers and suppliers

– Learn the correct legal name

– Know all owners

– Understand their finances and practices

Utilize Good Sales and Purchasing Practices – Use Good Contracts

Utilize Good Sales and Purchasing Practices – Use Good Contracts

• Use carefully written contracts

• Draft your own contracts when possible

• Have a lawyer review your contracts – before you sign

• Follow the contract

Utilize Good Sales and Purchasing Practices – Follow the law

Utilize Good Sales and Purchasing Practices – Follow the law

Make sure you comply with local zoning and leasing rules

Insist your contractors, managers, and suppliers do likewise

Require your tenants to follow the law and timely pay

5. All Planning Must Work Together

5. All Planning Must Work Together

• Business planning must compliment personal planning

• Make your business plan fit with your retirement plan, your financial plan, and your estate plan

• Ensure your advisors work as a team

Common Mistakes Investors Make

Select the wrong entity or no entity

Organize in other states

Sloppy bookkeeping and contracting

Fail to comply with state and local law

Do not follow good business practices

Thank YouThank You

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