Updated about 6 years ago on . Most recent reply
Form LLC to purchase through Private Seller
What are the greatest negatives (legal, operational, or financial) of purchasing property into an LLC or S Corp, from a private seller under seller financing?
Situation: Multiple properties owned by Seller. Properties are in town where I work and live. Properties are buildings converted to apartments in great locations. B and C properties but well kempt.
Currently have purchased one (strange foreclosure), rehabbed then rented out, and one 12 unit apartment building in nearby town.
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There is no advantage to an S corp for holding rentals as the income is already passive and not subject to self employment tax. An S corp allows some income to come to you as dividends and not be subject to self employment tax. So it can be a tax benefit for flipping properties.
An S corporation is probably better protection than an LLC for liability. The liability protection of LLCs is gradually being eroded away in some states particularly single member LLCs. A corporation requires more formalities to run however.
If you are considering buying an existing LLC that holds rentals keep in mind you are buying all the liabilities of that LLC. I would buy the properties and put them into a new LLC even though that might be more expensive.
I am not a lawyer or CPA the above should not be considered legal or tax advice for your specific situation.