Author Topic: Is it advantageous to create a holding company for your investments?  (Read 3921 times)

dividendman

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Hello all,

I have a fairly substantial investment stock/bond portfolio and am now considering buying a rental property or two. Someone at work casually mentioned to me that I should look at incorporating a business to hold these assets for liability and tax advantages.

I went online to read about it and while there is a lot of information on how to create a corporation I couldn't find a good summary of the advantages and disadvantages of a holding company for an individual's assets.

Has anyone done this? Are there significant tax gains? How large of an asset/income base does one need before it offsets the cost of incorporating plus the tax accountants and other time to just keep the corporation humming along?

To me it seems reducing liability is the only real advantage and that most of the tax gains can be had by running a business without incorporating.

I'm especially interested if anyone has done this internationally as I have assets in more than one country.

Thanks.

Johnez

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Re: Is it advantageous to create a holding company for your investments?
« Reply #1 on: November 02, 2014, 04:28:47 AM »
Fairly curious about this myself!

Lookie Loo

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Re: Is it advantageous to create a holding company for your investments?
« Reply #2 on: November 02, 2014, 05:26:00 AM »
I'm interested in this as well.  I'm looking to slowly start investing family and friends money.  It would be a type of hedge fund company.

Trirod

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Re: Is it advantageous to create a holding company for your investments?
« Reply #3 on: November 02, 2014, 05:36:05 AM »
No real tax advantages (unless you are worth more than around $11M and are creating a family limited partnership to take advantage of valuation discounts to reduce the amount of your taxable estate).  There may be liability reasons to put your rental properties in an LLC, but no tax reasons.  If you use a single member LLC then you can just report the income and expenses on your own tax return, so should be no additional annual costs of this.


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Bob W

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Re: Is it advantageous to create a holding company for your investments?
« Reply #4 on: November 02, 2014, 07:15:46 AM »
Put each property in desperate LLC.

dividendman

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Re: Is it advantageous to create a holding company for your investments?
« Reply #5 on: November 02, 2014, 11:19:26 AM »
Thanks folks. Yeah, I read a lot more on the LLC per property side on a bunch of sites, so I think I have a handle on that now.

I don't know about investing other peoples' money per Lookie Loo but that would be something I'm interested in at some point too. I'll see if I can find some more stuff out before paying someone for the advice :)

hodedofome

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Re: Is it advantageous to create a holding company for your investments?
« Reply #6 on: November 02, 2014, 11:42:51 AM »
If for instance you are an active investor and you visit the companies you invest in, you could write off those travel expenses. If you take your family with you and combine it with a vacation, then you are getting to write off expenses that you would have had anyways.

You could write these off without a llc, but I've heard that having a llc gives you less of a chance of getting audited than just self employment.

arebelspy

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Re: Is it advantageous to create a holding company for your investments?
« Reply #7 on: November 05, 2014, 08:14:50 PM »
Put each property in desperate LLC.

None of the other LLCs will think you're cool if you're so desperate all the time.

I personally don't advocate the separate LLC per property.  The equity is more relevant.
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Wile E. Coyote

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Re: Is it advantageous to create a holding company for your investments?
« Reply #8 on: November 05, 2014, 09:44:34 PM »
None of the other LLCs will think you're cool if you're so desperate all the time.

I personally don't advocate the separate LLC per property.  The equity is more relevant.

ARS,

Would you mind elaborating on this a bit?  I'm not sure I know what you mean by the equity being more relevant. 

Thanks!

Wile E. Coyote

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Re: Is it advantageous to create a holding company for your investments?
« Reply #9 on: November 05, 2014, 09:50:45 PM »
Hello all,

I have a fairly substantial investment stock/bond portfolio and am now considering buying a rental property or two. Someone at work casually mentioned to me that I should look at incorporating a business to hold these assets for liability and tax advantages.

I went online to read about it and while there is a lot of information on how to create a corporation I couldn't find a good summary of the advantages and disadvantages of a holding company for an individual's assets.

Has anyone done this? Are there significant tax gains? How large of an asset/income base does one need before it offsets the cost of incorporating plus the tax accountants and other time to just keep the corporation humming along?

To me it seems reducing liability is the only real advantage and that most of the tax gains can be had by running a business without incorporating.

I'm especially interested if anyone has done this internationally as I have assets in more than one country.

Thanks.

You may want to consider the tax rules applicable to personal holding companies.  They can be a pain to deal with.

arebelspy

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Re: Is it advantageous to create a holding company for your investments?
« Reply #10 on: November 05, 2014, 11:43:25 PM »

None of the other LLCs will think you're cool if you're so desperate all the time.

I personally don't advocate the separate LLC per property.  The equity is more relevant.

ARS,

Would you mind elaborating on this a bit?  I'm not sure I know what you mean by the equity being more relevant. 

Thanks!

If you own three properties with no equity, why do you need three separate LLCs? 

I'm a fan of deciding what risk your comfortable with and grouping together - I.e. You might have 3-5 properties in an LLC, based on the equity (say, 100k in each one).

If you have a $1MM property, that may warrant its own LLC.

But remember each LLC you open has its own costs associated with it, in terms of both time and money. So weigh that against the benefits, the potential liability protection. If there isn't much to protect, why are you paying all these extra costs?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.