Real estate investing has become a popular and favorite tool for earning extra income. When purchasing an investment property you have the option of purchasing real estate in your own name or purchasing it under the name of another entity, such as a real estate trust or a limited liability company (LLC).
Each of these options has benefits and drawbacks. In making this choice, you might also wish to consider the type of property you are buying, the number of tenants you will have at that property and your time frame for holding onto the investment property.
Part 1: Reasons to Purchase Property as a Real Estate Trust
A trust is a legal vehicle used to pass assets, in which trustees hold title to the property for the benefit of one or more beneficiaries. This arrangement is widely used as a tool to disguise owner names, to help with estate planning, or to allow a group of people to invest in a property without getting taxed differently.
Here’s why a real estate trust can be a good option for some investors:
- Multiple owners. If there will be several owners of an investment property, a trust is useful for documenting the relationships and ownership interests of all.
- Estate planning. For people looking to ensure that their investment property avoids a death tax, transferring it to family by way of a real estate trust can be an option.
The downside to a trust is that the rules around how much can be put into a realty trust for estate planning purposes change frequently, and partners of a realty trust will also have modifications they need to make in the future. These possibilities will require additional legal fees to manage down the road, on top of the original fees.
This blog post is part 1 of a 3 part series. Check back next week for part 2! As always if you have questions about managing your investment property or want to hand over the work and still receive the reward; then give us a call today and see all that we offer to protect and manage your investment.