Board Topic: Using an S-Corporation for a rental property
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Using an S-Corporation for a rental property

Posted by: PS2 Sep 27 2004, 02:19 PM
I currently have a dormant S-corporation. I am in the process of buying a rental property. What advantages would I have in activating the S-corporation for managing this rental property?

Posted by: loanuniverse Sep 27 2004, 03:38 PM

In my opinion, the advantage of owning the property under a corporate entity is one of liability. The problem is that most lenders will ask you for a personal guarantee anyway. In fact, most of them have that provision built into the credit policies.

There are some lenders that will not require this guarantee, but in my opinion you will either end up paying for it by pricing or the loan-to-value required to waive it is low enough that it does not become that big of a deal not having recourse against the owner.

Essentially, income producing property loans are underwritten using the net operating income as a source of repayment and that is what the lenders look at first. I see dozens of these loans a year and a good portion of the requests show the individual as the owner. My guess is that, as the deals get bigger or the property is of a more sensitive nature {think environmental concerns}, we start seeing more and more companies as the borrowing entity.

Posted by: Commercial Lender Sep 28 2004, 09:41 AM
Admin is right in that as the deals get bigger, the NOI etc is put more under the microscope. We require environmental checks regardless of loan size. And again as the admin said, the S-Corp helps protect your personal assets against any liability stemming from the property itself but as far as the loan goes, you will have to provide a personal gurantee with which ever lender you go go with.

Posted by: New Owner Sep 30 2004, 03:50 PM
Well, I'm in the same boat, and I wasn't quite sure as to why I need a S-Corporation. After some research, I got to this conclusion. A lot of bank requires personal loan guanrantee, for my situation, that's not a big problem since the loan is relatively small. My biggest worry is legal liability, for example, if a kid falls on my sidewalk and got hurt, the worst case lawsuit, my S-corporation goes up in flame (insurance, etc). But my personal assets will still be there for me. Does this sound right to everyone?

Posted by: Newcomer Sep 30 2004, 04:35 PM

New Owner,

Thats correct. As stated earlier by admin or Naj, the entitiy you chose will only protect the asset it holds from being liable in a suit. It will not protect you from the lender (This should be obvious).

I would suggest an LLC if your going the corp route. Less work, nearly no reporting, more tax breaks in some areas and you can control and manage assets easily.

- Newcomer

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