Form LLC to purchase through Private Seller

[Jason Cobb]

What are the greatest negatives (legal, operational, or financial) of purchasing property into an LLC or S Corp, from a private seller under seller financing?

Situation: Multiple properties owned by Seller. Properties are in town where I work and live. Properties are buildings converted to apartments in great locations. B and C properties but well kempt.

Currently have purchased one (strange foreclosure), rehabbed then rented out, and one 12 unit apartment building in nearby town.

[Ned Carey]

There is no advantage to an S corp for holding rentals as the income is already passive and not subject to self employment tax. An S corp allows some income to come to you as dividends and not be subject to self employment tax. So it can be a tax benefit for flipping properties.

An S corporation is probably better protection than an LLC for liability. The liability protection of LLCs is gradually being eroded away in some states particularly single member LLCs. A corporation requires more formalities to run however.

If you are considering buying an existing LLC that holds rentals keep in mind you are buying all the liabilities of that LLC. I would buy the properties and put them into a new LLC even though that might be more expensive.

I am not a lawyer or CPA the above should not be considered legal or tax advice for your specific situation.