When you own Washington D.C. homes for rent, you're a business owner. Even if real estate investments aren't your primary career, operating rental properties in the D.C. area is a business that benefits from the legal protections of a business entity.
In Washington, D.C., investors also need a specific business license to operate rental homes in our market. Before you feel overly-restricted, the right licensing and incorporation help protect your properties and income while separating your personal assets from potential liability.
When setting up your business entity, you should always work in tandem with your attorney and trusted property management services provider. At EJF Real Estate Services, we can help you determine the entity that makes the most sense for your portfolio and growth goals alongside your legal specialist. Here's what to consider.
Why You Need to Incorporate
When your D.C. rowhomes for rent are part of your private assets, your livelihood is at risk. If a renter sues you for discrimination or not providing adequate rental property maintenance services, you can lose your business and any private assets you hold to settle a payout.
- As you grow your portfolio, it makes good financial sense to choose a business entity to protect your acquisitions.
- You became a real estate investor to build more long-term wealth and fund your future financial goals.
- If something goes wrong with a rental property, you might not be facing the retirement you have in mind without a business entity in place.
Personal assets become mingled with business assets, potentially leaving you in financial ruin from a single lost claim.
The Right Business Entity Matters in D.C.
We're not offering our insights as a substitute for your legal counsel. However, as expert asset managers across property types, EJF Real Estate Services can help you learn about the best incorporation options as you determine strategic moves for your portfolio.
Choosing a Limited Liability Company
A Limited Liability Company (LLC) is one of the most popular choices for rental property owners. It's a simple way to incorporate business assets and income without overbearing government restrictions or operational requirements.
- Setting up an LLC in D.C. separates your rental properties and investment income from your personal income or assets.
- If something goes wrong with a rental property, your accumulated wealth stays safe from any penalties against your rental property business.
- When setting up your LLC in D.C., follow the legal process, and consult an attorney to walk you through it.
- An LLC is ideal if you don't plan to have shareholders and you want to keep filings and paperwork to a minimum.
- Filing taxes is still a simple process without additional LLC requirements.
A Limited Liability Company is an excellent option for your business incorporation, but it does have a few drawbacks. When talking with your attorney, be sure to compare and contrast the benefits of such a structure before you add more properties to your portfolio.
Setting up an S Corporation
If an LLC isn't the best option, explore your options via an S Corporation. This could be the better option if you plan to grow a significant real estate investment portfolio with more than one condo for rent in D.C., shareholders, and a board of directors.
Under an S Corp, you'll deal with more restrictions and reporting requirements compared to an LLC. Your rental property business must:
- Be registered with the U.S. as a domestic corporation.
- Stay below 100 shareholders.
- Have shareholders that are trusts, estates, or persons (excluding partnerships, corporations, or non-resident alien shareholders).
- Have only one class of 'stock.'
Choosing an S Corporation means you're thinking big—but not too big. As you consider your options, EJF Real Estate Services can help you understand the differences in how your properties function and what we can do to help with financial reporting requirements for each entity.
Something Is Better Than No Protection
Don't risk your investments or private assets by skipping the business entity process. It takes time and expert D.C. property management services to build a successful real estate portfolio and benefit from long-term wealth. Without incorporation, all of your hard work and income could disappear in an instant.
Choose Local Help
We can't decide the best business entity for your condo for rent in D.C., but we're here to support your portfolio regardless of your incorporation choice. Choose a local legal team to help you navigate the rental property business license process and choose the best incorporation option for your real estate investments.
Get the most out of your investments with the best business protections and association property management experience in the D.C. area. A business entity can't keep bad things from happening—but it can minimize how bad things can get for your personal assets and minimize damage to your long-term financial goals.
Professional Property Management Services Provide Support
Protecting every aspect of your rental property business helps investors experience more success. Placing your rental properties—both present and future—into a business entity is an added layer of protection you can't afford to skip if you want to keep your long-term wealth safe from potential problems.
Let EJF Real Estate Services help you grow with additional insight into real estate investments in the D.C. area. Download your free copy of our guide to real estate investing to get started.