Should I Buy My New Office With a Real Estate Holding Company?

If you are looking to buy new real estate for your business, you have a question to answer, whether you realize it or not: 

Should I buy real estate through my existing company or create a Real Estate Holding Company to buy it and rent it to my existing company?

A Real Estate Holding Company is a legal entity established and designed to own investment properties. It is a second company that you can set up to purchase real estate and then rent to your existing company. Even though some business owners may not be aware of the strategy, it is a commonly used tactic by entrepreneurs, companies, and start-ups alike.

There are immediate advantages to having real property owned by a separate company. It helps to protect you, your existing company, and the real property. For example, if someone brings a lawsuit against your business, they would not be able to collect against the real estate – because the real estate is owned by another company.   

A Real Estate Holding Company may also help business owners with certain issues relating to debt and ownership, depending on how the structure is set up. For example, the investors in a Real Estate Holding Company are not required to be the exact same owners in the same ownership shares as the operating company.  

There is also a potential tax advantage to creating a Real Estate Holding Company. Holding Companies still pay taxes, of course, but income taxes are typically passed through to the owners as passive income, which is not subject to FICA. For some business owners, the ability to own their real estate through a Real Estate Holding Company becomes the tax equivalent of giving themselves a raise.

There are many considerations when deciding the best option for you. Beyond just making the best decision, you need to make sure what you choose is legally correct. When assessing your options, you have to choose what is best for your existing company, allowed by law, and economically the best option for you.

So – which option is right for your business? 

The answer, which may not surprise you, is…. it depends. While there are benefits to setting up a Real Estate Holding Company, it is not right for everyone. There are benefits to owning everything under one company as well. Making the choice depends on what is right for your business.

If you are looking into buying new real property for your business, contact Grabitske Law today! We can advise on what options are best for your situation. We love helping businesses make the best choice in nuanced legal situations. We can help!

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Grabitske Law Firm, PLC

For nearly two decades, Paul Grabitske has been helping clients with their legal issues in the areas of estate planning, probate, trust administration, business law, agricultural law and litigation.

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