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  1. #11
    Senior Member riverrunner1984's Avatar
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    Quote Originally Posted by C-2 View Post
    Is there any reason he is suggesting a corporation? Can you get financing for a corporation without giving up a PG (personal guarantee)?
    From what I understand it is for taxes. The corp would get the rental income as opposed to me. The corp can depreciate the house and I can take a draw if needed from the corp. this is hear say right now but it's what I was told. I'm going to be looking into it a lot more once my house sells.

    Sounds like Paul, Matt or Dennis may know a bit more why a corp is a better option.

  2. #12
    Better off to buy a Kings View Condo (or 2) and bank the rental $$ plus use it...

  3. #13
    Senior Member riverrunner1984's Avatar
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    Quote Originally Posted by shueman View Post
    Better off to buy a Kings View Condo (or 2) and bank the rental $$ plus use it...
    Can you elaborate? Kings View Condo??

  4. #14
    Senior Member C-2's Avatar
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    It just seems odd, a single investment property (and not an apartment building) being placed into the name of a corporation. Even if it is owned in your own name, you still get depreciation write-offs and the property is much more easily managed. Using a corporation, there is paperwork, quarterly taxes to be filed, commercial insurance, minimum franchise taxes due - you're going to need an accountant to take care of it. Usually too, most RE investors use LLC's to hold title, they are more flexible, they are referred to as single purpose entities since the LLC's single purpose is to own and manage real estate.

    Also, I always look at things from a fubar perspective. If the lender requires you give a PG, then you are pledging additional personal assets for a piece of real property that would otherwise be protected by the one-action foreclosure rule. Say the shiat hits the fan, the property is falling apart, renters are not paying and you are upside down on the property. In a non-judicial foreclosure, a lender can take the property back, but that is their only remedy - they cannot also pursue any deficiency or costs. Or they could pursue a judicial foreclosure, where they can obtain a judgment for foreclosure, plus costs and deficiencies (very unlikely, most lenders use non-judicial foreclosure). They can't choose both options, it's only one or the other and most likely they would take the property back and call it a day (non-judicial foreclosure).

    But, if the lender has a PG in hand as part of the new corporation financing, and they foreclose on the corporation, even non-judicially - you have made a personal guarantee and they could sue you personally to collect on the PG. So even if the property is owned by the corp, you have exposed/tied yourself to that property, whereas if it was held in your name without any PG, the lenders only remedy would have been repossession of the property itself. They have a defense to that type of lawsuit, named a "Sham guaranty" defense...but why go there?

    I work cases all the time for SBA lenders who pursue defaulted/foreclosed borrowers who offered PG's since their corps could not qualify for financing on their own.

    Just some things to think about, a good CPA could pencil out some numbers to also help you.

    Good luck with it
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  5. #15
    Already miss the 310/562 2manymustangs's Avatar
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    Quote Originally Posted by C-2 View Post
    It just seems odd, a single investment property (and not an apartment building) being placed into the name of a corporation. Even if it is owned in your own name, you still get depreciation write-offs and the property is much more easily managed. Using a corporation, there is paperwork, quarterly taxes to be filed, commercial insurance, minimum franchise taxes due - you're going to need an accountant to take care of it. Usually too, most RE investors use LLC's to hold title, they are more flexible, they are referred to as single purpose entities since the LLC's single purpose is to own and manage real estate.

    Also, I always look at things from a fubar perspective. If the lender requires you give a PG, then you are pledging additional personal assets for a piece of real property that would otherwise be protected by the one-action foreclosure rule. Say the shiat hits the fan, the property is falling apart, renters are not paying and you are upside down on the property. In a non-judicial foreclosure, a lender can take the property back, but that is their only remedy - they cannot also pursue any deficiency or costs. Or they could pursue a judicial foreclosure, where they can obtain a judgment for foreclosure, plus costs and deficiencies (very unlikely, most lenders use non-judicial foreclosure). They can't choose both options, it's only one or the other and most likely they would take the property back and call it a day (non-judicial foreclosure).

    But, if the lender has a PG in hand as part of the new corporation financing, and they foreclose on the corporation, even non-judicially - you have made a personal guarantee and they could sue you personally to collect on the PG. So even if the property is owned by the corp, you have exposed/tied yourself to that property, whereas if it was held in your name without any PG, the lenders only remedy would have been repossession of the property itself. They have a defense to that type of lawsuit, named a "Sham guaranty" defense...but why go there?

    I work cases all the time for SBA lenders who pursue defaulted/foreclosed borrowers who offered PG's since their corps could not qualify for financing on their own.

    Just some things to think about, a good CPA could pencil out some numbers to also help you.

    Good luck with it
    ^^^^ What he said I think....



    I feel like there are ALOT of IFs in buying (paying interest) to obtain a rental property VERSUS the guy that plops down the cash OR moves a bunch of equity from a home sale (or tax deferred exchange) into obtaining said rental property free and clear (or close to it)...

    By the time you get done jumping through all of the hoops (paying for upkeep, managing, interest, more complex tax schedule filing fees, etc) your margin gets really thin with little room for error... Most of the guys that I know owning rental or investment property don't really look at the profit the stand to make along the way as they do the increase in value on the back end so putting some thought into future values 10+ years down the road is as important OR more important than the "cap rate"...


    Back to RR's original post, OR you could just set up a Charles Schwab account and start investing in the Schwab index fund (SFLNX, SFSNX, SFNNX)... On a very strict schedule with a really good budget and set up a college fund/rainy day fund while your at it with anything you have set aside for little Johnny... And watch your money grow grow grow...

    I think you would sleep better at night buddy... my 2 cents...
    Last edited by 2manymustangs; 10-26-2014 at 05:45 AM.
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