Structuring a Real Estate Investment Business: Tips from The Small Business Administration

You’ve been thinking about investing in real estate for a while now. Maybe you’ve even purchased your first investment property. Now it’s time to get serious about your plans. The first and most important step? Choosing a structure for your real estate investment business—one that protects you and helps you achieve your goals.

There are quite a few options to choose from, whether that’s establishing a partnership with a fellow investor or even establishing your business in a different state from your own. Your absolute best place to look when deciding how to structure your business, besides a trusted legal professional, is going to be the wealth of information available through the Small Business Administration.

What Is the SBA?

The SBA was established in 1953 under Eisenhower’s administration with the intent to “aid, counsel, assist and protect the interests of small business.” The agency’s goal is to grow small businesses around the country through the sharing of valuable information and start-up or expansion funding to businesses with a net worth of under $7 million and post-tax net profits of less than $2.5 million. 

SBA Funding Opportunities

Many became aware that the SBA provided funding following the launch of the Paycheck Protection Program (PPP) earlier this year, but they offer quite a few methods of acquiring funding as well. These opportunities exist as both low-interest loans or straight investment capital (matched by the SBA 2-to-1!) 

An SBA 504 loan or 7(a) loan will have limitations: investors can only use them to purchase or repair owner-occupied real estate and only 40 percent of commercial property bought with these loans can be rented to tenants. These loans are a great option if your investments meet these criteria.

Choosing the Right Business Structure

You are more than able to get a loan, buy some real estate, and begin renting it out as a solo business venture, but we wouldn’t recommend it. Without legal protections available through structures like an LLC or S-corp, your personal assets, including your home, your retirement savings, and your child’s college savings, will be vulnerable to lawsuits from tenants or others.

A major consideration when choosing your business structure should be taxes. There are different paths to take if you prefer filing a personal return and paying self employment taxes versus paying yourself as a salaried employee of your own business. A CPA or legal professional can help you navigate the right option for you and your business.

There are four primary structures available for real estate investment businesses:

  • Sole Proprietorship
  • Partnership
  • LLC
  • Corporation (S-corp or C-corp)

Sole Proprietorship

This may be just fine for a self employed digital worker, but when you begin investing in something like real estate a sole proprietorship will do nothing to protect you. By operating under this structure, your personal assets are indistinguishable from the business’s assets and thus at risk if you are hit with a lawsuit.


A partnership can be either limited or limited liability, but this structure is only available to businesses with two or more owners. The liability will depend on each partnership’s structure, but at least one partner will have limited liability.

Limited Liability Company (LLC)

An LLC can legally separate your business and personal assets, with the LLC holding the business assets separate from your personal property. If, God forbid, a lawsuit arises, the only assets at risk will be those owned by the LLC. An LLC can be formed by individuals (single-member), partners, or even large groups (multi-member). There are also different types of LLCs, so do your homework! You may also be interested in our article, What Is The Difference Between A Single Member LLC And A Sole Proprietorship?

Corporations (C-Corp and S-Corp)

Similar to an LLC, forming a corporation creates a separate entity from your personal life. This offers an additional layer of protection in that corporation owners are protected if a lawsuit is filed against the corporation. The primary difference between an LLC and a corporation is in taxation and how salary is handled.

Time to Start Investing!

Even if you have been investing in real estate for years as a sole proprietor, it’s not too late to consider a revamp of your business to protect yourself and your family. Once you have chosen your business structure, registered your business with the necessary government agencies (varies by state), and received your tax numbers, you’re ready to start operating under your new, more robust business structure! 

Last Updated: 
October 16, 2020

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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