8 Benefits for Real Estate Businesses to Obtain an EIN
Real estate is an exciting field for many, especially due to its flexibility, where people can opt to work full-time or part-time as a Sole Proprietor, LLC or S-Corporation and choose their own schedules. Others do it because they enjoy helping people realize their lifestyle dreams through sales or rentals. Still, others lean more toward purchasing and/or managing investment properties as a landlord and using them as an income source.
Any of these options are a great way to work full-time or to supplement your income. While some working in real estate may be employees for a larger corporation, the National Association of Realtors reports 87% of its membership are classified as independent contractors. Consider that this figure doesn’t take into account the many real estate agents who are not NAR members but operate as independent contractors rather than as employees of the agencies they are affiliated with. An EIN can make life infinitely easier for professionals such as these – including you.
1. An EIN Provides a Layer of Protection to Avoid Identity Theft
Identity theft is a persistent problem plaguing both the U.S. and abroad. To illustrate how problematic it has become, consider the fact that fraud cost American adults a staggering $43 billion in 2023.
As a professional operating in the real estate sector, you deal with many people and entities. This means anytime you need to supply a tax ID, you’ll have to give your SSN. ID thieves are constantly finding ways to exploit personally identifiable data (PII) and, the more your SSN is out there, the higher the risk of it being compromised.
Getting an EIN means you can provide that number instead of the SSN, putting a layer of protection between you and the identity thieves.
2. Gives Financial Separation for the Real Estate Professional and the Business
Individuals who sell or buy homes, rent homes, or otherwise engage in real estate actions (e.g. investors) are typically independent contractors. A lot of financial transactions happen in these professions and, if the individual does not have an EIN, this means using their personal accounts (with their SSNs). It also means they’ll end up commingling funds, which can potentially lead to tax issues and other problems.
Additionally, if the real estate professional operates their business as a single-member LLC, they will need to separate their personal and professional transactions. If not, they risk losing the financial and legal protections an LLC structure provides them, along with running into tax-related problems with the IRS.
3. Positions You to Grow Your Business
The real estate industry, like some others, tends to ebb and flow. If the market has an upturn, you will want to be prepared to handle volume. This means you might need to hire employees to handle scheduling appointments, bookkeeping, or other administrative tasks. You also might want to form a partnership or expand into a multi-member LLC or a corporation.
In any of these scenarios, an EIN is required. By obtaining one as a sole proprietor or single-member LLC, you will be well-positioned for the future if you need to hire employees, get a business loan, or otherwise expand. With an EIN, you’ll already have your bases covered.
4. You Open Your Options for Retirement Savings
As an independent real estate agent, investor, or landlord, you aren’t invested in a pension or employer-sponsored 401(k) plan, so you’ll have to plan for retirement yourself. While you can open a SEP-IRA account with your SSN, your bank may require an EIN. If you decide to build your retirement funds into an individual 401(k), you legally will need to use an EIN, so by applying early, you’ll have it ready to go.
5. Increase Your Professional Credibility
Individual contractors, such as real estate professionals, who use their SSNs as tax identifiers tend to look “amateurish.” If you want to be taken seriously by other professionals you work with, an EIN for your real estate business is a much better look, and it can help you elevate your level of credibility and professionalism. Additionally, it demonstrates you take your business seriously and have separated your personal and professional financial transactions.
6. Can Open a Business Bank Account
The majority of banks require business owners to obtain an EIN before they allow them to open a business bank account. In some cases it’s possible, but why take the chance? It is easier to go for the sure thing and have the EIN in place so you can open the business bank account as soon as you need it.
Having separate business and personal bank accounts also makes it easy to view your income, expenses, and transactions for your business, since you won’t need to sort through your personal transactions.
7. Gain Access to Open a Business Credit Card
After you complete the process of obtaining an EIN, you can work on building your business’s credit standing. This typically begins with opening a business credit card. This way, you separate your personal and business credit, so the two are calculated completely independently of one another.
After you begin to use your designated business card, you can start the process of building credit for your company. Over time, with good standing, you’ll be able to earn a high credit rating, giving you better access to more favorable loan opportunities from creditors. Alternatively, if your business struggles, your personal credit score won’t be hurt.
8. Applying for an EIN Elevates Your Business Standing
Your EIN goes a long way toward elevating your standing in the real estate community. Once clients, banks, and others you work with see you’re serious about establishing your business, they’ll look at you as a professional, instead of a hobbyist or amateur.
Obtaining an EIN might seem like another detail not worth pursuing when you have other pressing matters and deadlines to meet with real estate transactions, but this is something you shouldn’t put off indefinitely. Whether you need one or not really shouldn’t matter much because the benefits you get after receiving your EIN are well worth it.