Do you need a business license to be an investor in real estate?
You’ve decided to put money into real estate, and now you’re not sure what to do next. You want to know the answer to the question, “Do I need a business license to invest in real estate?”
It’s great that you’ve chosen to take the next step toward becoming an investor. As with most things in real estate, what you plan to do and how you plan to do it will determine whether or not you need a business license.
So let’s start to explore. But keep in mind that this information is only given to help you. Talk to an accountant and an attorney to get good advice on how to set up your business.
What is a license to run a business?
InfoBloom says the following about a business license:
A permit is a type of license that lets a business run in a city, town, or state. A license may even be needed by the government. The license, which is usually given in writing, gives the business owner permission to do the business things listed on the license application.
There may be different needs for a business license based on state and even local laws. Because of this, there isn’t a strict rule that goes all over the country.
Also, there are some business tasks that you can’t do without a certain license. Real estate agents (sales agent license), plumbers, inspectors, and stockbrokers (series 7) are all examples of people who need licenses. All of those require extra licenses on top of the normal business permit you can get from the state.
Do I need an LLC or a corporation?
When you run a business in the United States, you work for yourself. If I give a friend a piece of gum, I’ve just done business in my own name. The cost can be written down and deducted from my income. The law says that I must then tell the IRS about these gains. Operating in this way is the same as being a sole owner. Any business you run is under your own name.
On the other hand
If you grow a firm or have a lot of assets to safeguard, you may pick an LLC or corporation. These institutions just protect assets. No, but it’s a good idea.
DBA—what is it?
You need a DBA if you do business under a different name. If your name is John Smith and you call yourself “The Real Estate Guru,” you must register documentation with your municipal authority. John Smith is the Real Estate Guru.
What Real Estate Niche Are You?
First, decide how you will invest in real estate. Ultimately, hundreds or thousands of real estate specializations have diverse requirements.
We can categorize your investment plan as passive or active, then focus down your needs.
A passive investor buys property, invests with others, lends money, or does any business that earns passively without much daily labor. Like stock investment. After choosing which stocks to invest in, maintaining your investment requires little effort. Your only future choices are to invest more, hold what you have, or sell and take profits or losses. Passive investors do not need licenses.
“Real estate investors” usually indicate businesspeople. A house flipper may call themselves a real estate investor, but flipping houses is not an investment.
- Ordinary income taxes house flipping.
- Repairs are COGS.
- You work, fix, etc.
This “real estate investing” business does not invest. If you sell goods or services, you may need a business license. Next, we’ll elaborate.
Do Real Estate Investors Need Business Licenses?
Passive investors don’t need licenses. If you are actively growing a business, you undoubtedly need documentation or licensing. You don’t need a license to rent property and make repairs.
Does Wholesaling Require a Business License?
Wholesalers must advertise, mail, cold call, etc. Your local government will likely require a company license or DBA. Over time, wholesalers have been scrutinized, and some jurisdictions are requiring greater license. Some states require wholesalers to be real estate agents. Check local state legislation.
Does Flipping Houses Require a Business License?
Your company practices will determine this. However, a business license or DBA is usually required.
Home builders must provide warranties. Even if a subcontractor gets all the licenses and executes all the work, you must satisfy any warranty responsibilities. Homebuilders must file company documentation with the state or local authorities.
Does Property Management Require a Business License?
You may not need to file if you manage simply your own property. For liability, a property management company may still be a smart idea. If you manage property for others, you need a business, DBA, and maybe a real estate agent license.