The purpose of the Holding Company is to hold the cash earned from the rental properties. Also, the holding company will hold 100% of the shares of the Real Estate Companies or if there are other investors, the holding company can hold its share of the company respectively.

What business entity is best for holding real estate?

Limited Liability Company
The Limited Liability Company (known as LLC) is the best entity for most real estate and mortgage investors who “buy and hold” their investments. When you buy and hold real estate it is considered a capital asset.

How does a LLC work as a holding company?

One LLC is organized to serve as the parent holding company. The business owners hold all interests in the parent LLC. Separate subsidiary LLCs are formed to hold title to each high-risk asset (such as rental property) or business line. The parent holding company owns the subsidiary LLCs. High-risk assets are transferred into the subsidiary LLCs.

How are LLCs used for real estate investment?

The holding company structure involves using a parent LLC as a holding company to operate the real estate investment business. The holding company owns subsidiary LLCs that are formed to hold each investment property. See Holding Company Structure for LLCs for an explanation of the benefits of the holding company structure.

How does a holding company work in real estate?

The parent holding company owns the subsidiary LLCs. High-risk assets are transferred into the subsidiary LLCs. In the above example, the real estate investor owns three properties (one commercial and two residential rental properties).

When did real estate holding companies become legal?

Although the enactment of LLCs can be traced back to the 1970’s, real estate investors have largely begun to take interest of the benefits in the past decade. They are now often used as a tool to reduce personal exposure to monetary and legal risk.