Buying investment properties as an individual or company. Which is the best option.

3 Replies

Hello PB friends,

I am in the process of gathering information so i can purchase my first home. My plan is to buy and hold a multi-family residence, live in one and rent out the others. Should i setup an LLC and purchase in the company name or purchase as an individual? What are the tax implications of both options.

Thanks in advance. Zack

IMO, I would wait till you have more properties before starting an LLC or S-Corp. I have a partner, so we started an S-Corp and there are lots of fees with running one, vs just having it in your own name and an umbrella policy to cover. An LLC might be cheaper than an S-Corp. You would still get taxed the same either way, as all profits (or losses) just flow down to your income.

Also, if you purchase in your own name, then you can use normal financing with a lot lower down payment. I believe if the property is purchased in an LLC, they would need the 20%-25% down rather than 3.5% or so. I know some banks require the LLC to be in operation with good financials for a year or longer also.

This is all just from my experience though. 

I was told that if I wanted to go the owner-occupied route, I had to be the person buying the property. My lawyer told me not to worry about establishing an LLC or doing anything more sophisticated until I acquired my second property. The reason for that is once you have multiple properties, you don't want litigation with one bleeding out into the others.

Way to be thinking ahead! Do you mean your first home as an investment? I wouldn't bother putting a SFR in an entitiy either way. The state and federal reporting, tax forms, maintaining the corporate veil, refi barriers, etc are all a pain. I have one of each, 1 s-corp and 1 LLC. I did establish my mgt co (just for myself so no RE license needed) right away, but I do not hold assets in it. For the purpose of maintaining anonymity and gaining some liability protection and estate planning advantages, I own my multi's in an LLC and manage them with the S-corp. As a rule for me, I do not own assets in a corp. Shareholder stuff is more difficult to deal with than member stuff, essentially. It can also tends to be more public, who owns how many shares. Try not to get too bogged down in all this. Best of luck!

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