S Corp - Are we doing this right?

[Account Closed]

Hi BP Community,

Can you provide some guidance on the best way to purchase a rental property given the below scenario? Thanks!

4 Partners planning to purchase rental property using conventional financing. Our lender has approved of our plan to buy the property as a single individual and then transfer the deed to our S Corp. Ideally, the four of us will alternate between purchases. Our question is how do we transfer the funds for the down payment to the individual who will be taking out the conventional loan? The bank doesn't care how the individual gets the funds as long as they are secured in their account 60 days prior to applying for the loan. We're wanting to know if there are any tax implications since the three not taking out the loan would be "gifting" a large sum of money to the individual taking out the loan. Is there a common way to accomplish this? We were told the funds could not come out of a joint account. Our other option is to have the individual have the liquid to cover the down payment and then send them our portion of that payment after the fact but again are worried about potential tax implications for moving that large of an amount.

Any insight you can provide would be greatly appreciated as we look to begin our journey. Thanks!

[Jake Hottenrott]

First thing is first, why an S Corp? Typically this is not a good choice for passive investments.  Who suggested this to you?

If you are round robin providing funds, why not buy individually?

The bank approves the personal purchase then transfer to LLC now, but is the due on sale clause still in the loan docs? If so, have you essentially notified the bank that you've triggered the clause and they can call the note due at any time?

You’ll definitely need to work through this with a tax professional.  You have a lot of things in play and I’m not sure it’s going to be as straightforward as you think it will be.