How to Start a Real Estate Holding Company in Illinois

A real estate holding company profits by making investments into land and buildings with the expectation that these properties will appreciate in value. Real estate holding companies may or may not engage in active real estate development. Starting a real estate holding company in Illinois requires you to abide by enterprise and real estate law specific to the state and acquire the necessary licenses.

Instructions

1. Obtain an Illinois real estate license. To get a license, you must attend at least 45 classroom hours in an accredited real estate course. (Reference 6) This should cost between $100 and $200, according to real estate blogger Jeffry Evans. (Reference 5) You must have a valid real estate license to engage in most of the aspects of a real estate holding company's business.

2. Set up your business entity. If you want to form your company as a corporation---meaning that it exists as an entity separate from its owners and that owners are shareholders---you must register with the State of Illinois and file articles of incorporation. Limited liability companies (LLCs) and limited liability partnerships (LLPs) must also register with the state, and they must file articles of organization. Sole proprietorships only have to register; they do not need to file all of the paperwork required of corporations, LLCs and LLPs. It is not advisable to set up a real estate holding company as a sole proprietorship, because this gives you no personal protection against business liabilities. For instance, if you make an investment into a $400,000 property and something happens that causes the property's value to suddenly drop to $150,000, either you or the company is responsible for this difference. With a corporation, LLC or LLP, the worst that can happen is the company goes bankrupt. With a sole proprietorship, this company liability suddenly becomes your personal liability.

3. Raise capital. Real estate is expensive, so it is difficult to start a real estate holding company without adequate capital. Most companies raise capital either through debt financing or equity financing. For this type of business, you may use both. First, you may engage in equity financing by getting an investor or partner to put cash into forming the business. Once the business has cash and has begun operations, you may apply to lenders for debt financing on specific properties. The Illinois Department of Commerce and Economic Activity provides a number of resources that can help small businesses to raise the necessary funds to get started.

4. Buy properties in Illinois. Find properties in areas where you expect real estate prices to rise in the near future. Remember that real estate investments often feeds off of other real estate investments: if a real estate development firm plans to build a mall, subdivision or shopping center in a particular area, that can raise the property values for surrounding areas.

References

• State of Illinois; A Guide for Organizing Domestic Corporations; Jesse White
• State of Illinois: Registration, Licenses, and Permits
• Illinois Department of Commerce and Economic Activity: Loan Programs
• Gallagher, Callahan and Cartrell: Real Estate Holding Companies Targeted by DRA in Proposed Rules
• RealEstateLicense.org: Is It Worth It To Get A Real Estate License?; Jeffry Evans; August 2011
• Real Estate Express, LLC: Illinois Pre-License Course - 45 hours