Joint Venture?

[Dori Komarin]

Hi,

I'm new to the forum but not completely new to RE. We are buy and hold (rent) investors. My husband and I have a 1 bedroom condo and a 5 bedroom house in Las Vegas, and a 3 bedroom house in the Poconos - all rented. The Poconos house we bought under our S-corp.

We have a friend interested in partnering with us on future purchases and we are currently looking at some properties in Rochester.

Since our S-corp already has one rental property on it, we don't want to make this new partner a partner in the S-corp. Our accountant definitely prefers S-corps to LLCs.

Our goal is to continue to purchase and rent out properties with this partner and ultimately be able to get investors for future deals, so we want to be able to show that we are legitimate and have experience.

Question: Do we have our friend set up an LLC or S-corp of his own and then enter into a joint venture with him? Do we set up a new S-corp with him as a partner for this and future deals? Can the new S-corp be a joint venture with a new company name that consists of our current S-corp and his company or him as an individual?

Suggestions and advice greatly appreciated.

Thanks!

[Steven Hamilton II]

Originally posted by @Dori Komarin:

Hi,

I'm new to the forum but not completely new to RE. We are buy and hold (rent) investors. My husband and I have a 1 bedroom condo and a 5 bedroom house in Las Vegas, and a 3 bedroom house in the Poconos - all rented. The Poconos house we bought under our S-corp.

We have a friend interested in partnering with us on future purchases and we are currently looking at some properties in Rochester.

Since our S-corp already has one rental property on it, we don't want to make this new partner a partner in the S-corp. Our accountant definitely prefers S-corps to LLCs.

Our goal is to continue to purchase and rent out properties with this partner and ultimately be able to get investors for future deals, so we want to be able to show that we are legitimate and have experience.

Question: Do we have our friend set up an LLC or S-corp of his own and then enter into a joint venture with him? Do we set up a new S-corp with him as a partner for this and future deals? Can the new S-corp be a joint venture with a new company name that consists of our current S-corp and his company or him as an individual?

Suggestions and advice greatly appreciated.

Thanks!

Fire your accountant if he advised an S-corp.

NEVER hold real estate long term in a corporation. Debt is NOT part of your basis if you utilize it. You can create a taxable distribution if you refinance and distribute cash. I also don't think anyone wants to draw a salary based upon the income.

You also run into an issue if your S election is terminated.

If this is solely for holding a rental property a partnership should be used, or LLC taxed as a partnership. You can easily create another partnership. If you are going to keep the same partners as you have now and want to invest into deals with someone else your group can enter into a partnership with other people or entities.

SO it would be your Entity is one partner in another entity.

Here are a few articles to view:

http://www.briancpa.com/holding-real-estate-in-a-corporation/

http://www.biggerpockets.com/articles/3345-ten-reasons-not-to-use-corporations-for-real-estate-ownership

I know several of the individuals in this conversation personally:
http://www.taxalmanac.org/index.php/Discussion:Is_it_best_for_a_single_member_LLC,_with_one_rental_property,_to_file_a_1065_or_1040_Schedule_C#RE_in_a_corp_discussion_starts_here

http://activerain.com/blogsview/1492915/why-you-should-never-own-real-estate-in-an-s-corp-in-hartford-ct-

Do I need to continue?

If you have questions please ask. We are here to help.