Benefits of the Three-Tier Structure for Real Estate Investors

If you’re curious about the advantages of the three-tier structure for real estate investors, this article will shed light on the topic. 

The three-tier structure is a popular choice among real estate investors. It comprises three distinct corporations: 

• Management Corporation: This entity offers property management services to the real estate company and receives a fee in return. 

• Real Estate Company: This corporation is responsible for owning land and buildings. 

• Holding Corporation: Acting as a “piggy bank”, the holding company owns all the shares of the real estate company. The term “piggy bank” is used because the real estate company periodically distributes cash dividends from its rental profits to the holding company. 

There are three primary advantages of adopting the three-tier structure: 

• The management company enjoys a low tax rate, paying only 15.5% on business profits. 
• The real estate company faces reduced risks from lawsuits since it doesn’t handle any property management services. 
• The holding company safeguards cash retained earnings against creditors. 

In conclusion, if you’re a dedicated real estate investor, consider leveraging the three-tier structure. It can help minimize legal risks, shield your cash, and optimize your tax obligations.