Investors in California real estate hope for returns on their investments, but they must also understand the inevitable risks. A real estate investment, whether it involves participating in a real estate syndicate, buying shares in a real estate investment trust or buying land for development, is a business venture. All business ventures involve risk, starting with the loss of the investment principal and continuing to the limits of the imagination. Investors should carefully consider their potential liabilities and plan a business entity accordingly. Proceeding without any formal legal structure creates a sole proprietorship or general partnership, which offers no protection from liability. California law allows real estate investors to form various business entities that can shield them from liability for business obligations, including a limited liability company (LLC).