Corporation vs personal when buying and holding

4 Replies

Hello BP community!

My partner and i just made an offer on our first 2 buy and hold properties.

Should we open up a corp or simply use our personal names for now and going forward?

Corp means that I don't get the same mortgage terms, personal means that I need to get a balloon insurance (whatever that is). Also from the partnership point of view especially for a long-term ahead, I want to make smart decisions now so I don't regret later:))

I would appreciate your input on cons and pros - I need to decide quickly which is the proper way to go!

Thank you all!

I like using corporations for buy and hold. It offers the same insulation as an LLC but it also changes how your profits are taxed and when. Its much more beneficial in C Corp. I would never purchase buy and hold as "Corina Eufinger" or DBA. Leaves way too many liabilities and other issues out there.

Two lawyers I consulted suggested LLC. And one suggested having a master LLC holding each individual property as an LLC within it. If you have a partner somewhere you need to document your operating agreement. If you put in your own names not only do you liability risks but you'll also need to figure out how to document your partnership terms and handle accounting.

Even if it's in your name or not, financing is still going to look at the investments with different terms if it's not your primary residence as far as I recall. I remember getting better terms than multi-family/commercial but since they knew it wasn't going to be my primary residence the terms were different. You can buy in your name, close financing and then transfer into an LLC too. Not sure how every state does this but in FL there's a transfer fee. Fairly nominal but it all adds up.

We own a lot of property and hold all of it privately. Keep good insurance. On your partnership, your legal agreement with your partner is your most important concern here, not how you stack the properties you've bought.

Ask a lawyer ANY question and the answer will always result in a recommendation which will require some legal service (and their fees).

Don't get paranoid on "Asset Protection" - - just forming the legal entity and getting title in that name does not inhibit lawsuits nor insure you're immune from losses.

Then there's the practicality of getting a loan in the entity name - - not trivial.  If you can go all-cash, then this is a non-issue, but must of use can't go that route.  When you transfer from your personal name (required to close in most cases), you the expose yourself to the Due On Sale problem.

Additionally, there's annual fees and taxes against the legal entity, draining your ROI and for SFRs with thin margins, this can be significant.

As noted above, holding in your  own name work well when you behave as you expect others and avoid doing dumb stuff that clearly leads to lawsuits.