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The Pros and Cons of the Real Estate Business

Aug 17, 2007
Real Estate Business: To be or not to be

Real estate business has been around for a good number of years. More and more people are drawn to it because of the steady influx of money. But there are things you have to consider before entering a real estate business.

First you have to decide whether it would be a sole proprietorship or through a corporation, partnership or trust. Each has its own pros and cons. Let's take a look at them.

In a sole proprietorship, everything as "sole" describes, managed by a single entity. In terms of splitting the income, it could be divided among family members that have a lower income bracket. A lawsuit that may arise in the future regarding the properties is held personally.

Corporation is a structured legal entity that consists of a group of persons known as shareholders. Investments are high in this type because investors are attracted to the built-in stock structure. This type stays on the market for years until the stockholders decide to split up, or merge with other corporations. However, starting a corporation needs a lot of money. Proper corporate formalities should also be followed in order for it to be recognized as a corporation. A huge amount of paperwork is also expected in this type. This includes reports, bank accounts and records that should be updated from time to time.

Partnerships are generally liable for one another. Though with taxes, an individual may be taxed in terms of his individual level. Administrative and compliance costs incurred through partnership include legal, partnership agreements, accounting and tax.

Trusts in some cases may be similar to a corporation, however, unlike a corporation, trusts are not held liable to capital taxes. And in case of losses, it remains within the trust and could not be flowed out to the beneficiaries.

When you know what type of management to consider, set on your priorities whether it would be land, apartment buildings or rental apartments.

Buying a land, like a broker, would be good investments but one has to wait a long time waiting for the value of the property to go up. However, you could get it for a lower cost.

For rental apartments, it would be an easy start and a long term return on investment but waiting for the pay-offs.

Apartment buildings mean triple-net income. It is because the tenants are usually tied in a three-year contract. A drawback on this is a vacant space for a long period of time. For every year that it is not leased, it would mean a loss of income.

Real estate business is a vast. There are many things to consider before playing the game. Take time analyzing on terms and conditions that goes with it. In the long run, wisely made decisions could bring in a lot of money and lesser problems.
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