Three Types of Real Estate Investors

There are three main types of real estate investors:

  • Real Estate Developer. This is someone who improves or changes the use of a property. They could then either put it in service as a real estate investor as a rental or they could sell it as a real estate dealer.
  • Real Estate Professional (REP). A REP is someone who meets strict criteria for taking a special deduction of real estate losses against other income.
  • Real Estate Business. A real estate business owner owns and rents out property for short periods of time and provides additional services.
    These three terms all have different tax consequences and require unique strategies. Today, we’re looking just at the real estate dealer definition.

A real estate dealer is someone who buys and sells real estate, or at least that is the intention. But, a real estate dealer could decide not to sell and instead rent out property. And a long-term hold strategy real estate investor could decide to buy and sell, and never be considered a dealer.

This is a confusing definition and it’s made even more confusing because although we refer to the person as a real estate dealer, it’s a definition that is decided property by property.

Real Estate and Taxes Tip: Real estate dealer is a definition given property by property. You could be a real estate dealer with some property and not with other property. Use the definitions to your advantage to reduce your taxes!
Dealer Intention There is no hard and fast rule for the definition of a real estate dealer. At least, there isn’t one yet. We expect the IRS to start cracking down on with their audits soon. The Tax Court cases that will inevitably follow will create more clear-cut definitions.

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