As a real estate investor, you should understand the NAICS code that relates to your industry.
This article discusses the finer details of this code system and its impact on your business.
What Is a NAICS Code?
The North American Industry Classification System (NAICS) is developed by the United States, Canada, and Mexico to classify businesses into industry-specific categories for economic data collection, analysis, and reporting.
In some states, providing your NAICS code is optional, but in other states, providing your code will be required.
Why Do I Need a NAICS Code?
While a NAICS code won’t make or break your real estate investing business, it can be useful in certain situations.
Economic tracking and analysis
Governments and researchers use NAICS codes to track economic activity, analyze growth trends, and predict future performance. If you’re in the real estate business, using the appropriate NAICS code helps ensure that data about your sector of the economy is accurate.
Loan application
When applying for business loans or lines of credit, financial institutions often request a NAICS code to better understand your industry and its potential risks. The code helps them make informed decisions about your eligibility and the loan terms.
Business licensing and zoning
Some local governments require a NAICS code when applying for business licenses or determining appropriate property zoning. The code helps the authorities understand the nature of your business.
Tax purposes
Some tax deductions and credits are industry-specific. The Internal Revenue Service (IRS) and other tax authorities may use NAICS codes to determine eligibility for these tax benefits.
Insurance
Insurance companies often use NAICS codes to understand the risk associated with a particular business. This helps them calculate appropriate insurance premiums.
Business relationships
If you work with other businesses, such as contractors or suppliers, they may request your NAICS code to better understand your business and its needs.
Where Can I Find My NAICS Code?
Visit the NAICS website to identify the NAICS code for your LLC. You can find your code using either the keyword or industry search options.
If you’re using the keyword method, type the initial term of your business’s sector into the “NAICS Keyword Search” field. Hit “Submit” and search the results until you find the code most closely related to your field.
You can also use the industry search method. This involves selecting your business sector (in this case, real estate) from the industry list located beneath the search bar. Your industry’s corresponding NAICS code will be displayed.
For further assistance in identifying your LLC’s NAICS code, consider contacting the U.S. Census Bureau at 1-888-756-2427.
Common NAICS Codes for Real Estate Investment
Here are some of the most common NAICS codes for real estate-related businesses.
- 531110: Lessors of residential buildings and dwellings. This applies to investors renting out residential properties like apartments, homes, and condos.
- 531120: Lessors of nonresidential buildings (except Miniwarehouses). This code is used for investors leasing commercial properties such as office buildings or shopping centers.
- 531130: Lessors of miniwarehouses and self-storage units. This code applies to investors in the self-storage or mini-warehouse business.
- 531190: Lessors of other real estate property. If an investor leases out other types of real estate properties not mentioned above, they would use this code.
- 531210: Offices of real estate agents and brokers. If an investor also acts as a broker or real estate agent, they would use this code.
- 531311: Residential real estate property managers. Investors who manage residential properties for themselves or others would use this code.
- 531312: Nonresidential property managers. This code applies to investors who manage nonresidential properties.
- 531320: Offices of real estate appraisers. If an investor also does property appraisals, they would use this code.
- 531390: Other activities related to real estate. This catch-all code covers other real estate activities that do not fit under the other codes.
As you can see, there’s a code for every type of real estate business. Your NAICS code should reflect your primary business activities.
Conclusion
It doesn’t matter if you’re selling real estate, renting real estate, or partaking in some other type of related investing activity, understanding and utilizing the appropriate NAICS code for your real estate business is essential for economic tracking, loan applications, tax purposes, and more.
As a real estate investor, you can use this classification system to enhance your business’s visibility and streamline various processes related to licensing, zoning, and financing.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
