Should I Incorporate

Question

I'm close to purchasing my second Multi-family unit in a different state. My 1st is a 6 unit in NYC my 2nd should be a 19 unit in Ohio. Just wondering when would be a good a good time to incorporate the property, if at all. Please let me know if I'm jumping too far ahead or if I should be starting immediately.

N/A N/A · Answer

The building and myself are already qualified. A good thing as the bldg. is providing an 11% cap. I've gotten a contact, (RE lawyer) which I'll be consulting today for some advice and see what he may recommend as far as  state processes go. You bring some good points as far as what to watch for. I'll definitely ask about them. Appreciate the information and I'll keep you posted.

Account Closed · Answer

If you do not create the business vehicle before the closing the loan and the property will be in your individual name. If you have the entity set up first then you stand a chance of having the deal close in the business name (and recorded on the title).

Assume that the business will have to be in OH or if you set the business up out of state you will have to register a foreign entity in OH.

Lenders in OH who lend locally will expect a local business address and other details. Not completely required but normally assumed.

To put both properties in the same business entity is slightly messy given the cross boarder aspects. Not impossible. You just need to register in both states so at least 1 time will be as a foreign entity (foreign means set up in the state where you registered as a foreign entity). In some states the cost of registering a foreign entity is the same or more than a domestic entity.

Given the property value it might make sense to create 1 entity per property and then have the two of them owned by you or owned by a third entity.

You are definitely in the area of tax and legal advice. You are not playing with small numbers so best to get some competent advice. Someone who can also represent you later when it comes time to file tax returns or when you need to take legal action against a tenant, etc.

The business will likely need you to guarantee the loan. That is not as risky as buying the property in your own name. As the building is clearly a commercial property the lender is expecting the building to stand on its own when it comes to income. If the building can not qualify then there is something wrong with the income/expenses.

John Corey

N/A N/A · Answer

OK, but when do I actually go about it. Would it be before the closing and how would that affect obtaining the loan , which I'm approved for right now, personally. I can't imagine it being after then paying a transfer tax. I'm a little cold on the whole subject and would appreciate any advice. Ohh! I also have a 6 unit in NYC which is currently under my personal ownership. Maybe I can somehow get both under one corp or LLC.

Account Closed · Answer

Yes you should incorporate. Many banks have Business Lines of Credit they will do and some (such at National City) that I know of, will do Unsecured Business Lines of Credit.

This is a loan to the business that does NOT show up on your credit, and you are not responsible for. That is one great reason to incorporate. Let alone the liability issues and tax issues involved.

As always, talk to an attorney about the proper entity structure for you.