Which entity is best for your real estate investment?

Which entity is best for your real estate investment? It depends. A buyer of real estate can acquire and hold real estate through a variety of investment means. The ownership structure can greatly affect the success of an investment in real estate. The challenge is to create a structure that captures the underlying goals of the parties and meets the entity’s technical, operational, financial, accounting, regulatory, legal and tax requirements. Title to real estate can be held by an individual person, multiple persons, or through a business entity (corporate ownership). Corporate ownership of real property has several advantages such as allowing investors to spread the risks and costs of a particularly expensive or large real estate venture. A small group of active investors may opt for a form of ownership that would allow for shared management of the investment (as seen in General Partnerships and Tenancy in Common). Alternatively, a venture with a larger number of investors or several passive investors would often be better suited for a more passive investment vehicle such as a manager-managed limited liability company, or a limited partnership. However, most structures that allow for large group ownership also limit the right of most investors to participate in the investment. Other structures, such as limited liability companies (LLCs), allow parties to leave the day-to-day management to one active partner but give the remaining investors the right to participate in major decisions affecting the investment.