Holding companies, one way to start?
Hey BP! I would greatly appreciate your expertise on the concept of holding companies with respect to real estate investing. Robert Kiyosaki, in Rich Dad Poor Dad, says his first company was a real estate holding company. I researched into them a little and would like to know if the following scenario would be worthwhile.
My two partners and I would start a parent company and form a wholly owned subsidiary under it to build capital. This first subsidiary's purpose would be to invest in such products as stocks, mutual funds, REITs, and other brokerage services to build capital for the venture. Then we would form another wholly owned subsidiary for our first acquisition, funded by the investment subsidiary for its own return on investment. Essentially, one subsidiary profiting off the success of the other as an investment,
As our business grows we would continue this structure, placing layers of corporate veiling between us and our assets. We do anticipate growing a rather large real estate business, with divisions in both residential and commercial. Does this structure seem plausible for us as new investors? A primary motivator for this is to utilize an entity as a way to pool our money together while maximizing its growth through various investment vehicles prior to purchasing real estate.
Your professional insight and experience are greatly welcomed!
Sounds like a lot of unnecessary overhead. If you think the "placing layers of corporate veiling between us and our assets" will shield you from litigation (e.g. securities issues) then you probably need better legal advice. Regarding "A primary motivator for this is to utilize an entity as a way to pool our money together while maximizing its growth through various investment vehicles..." please seek a competent securities advisor.
As for Rich Dad companies... you can try to figure out their convoluted ownership schemes in this SEC document (exhibit B): http://www.sec.gov/Archives/edgar/data/1095276/000101968710002457/tigrent_sc13d-062810.htm And after that, it appears Rich Global, LLC filed BK in Wyoming bankruptcy court: http://business-bankruptcies.com/cases/rich-global-llc with creditors that include Arizona Department of Revenue and the IRS.
I guess I'd suggest the KISS model until you get to $10M in assets...
I have to agree with @Chris Martin , unless you have a lot of money in it you probably do not need that many layers and that much extra work and cost. if you are doing highly risky investments splitting those away from your regular company may be worth it.
