If I own a property through a corporation can I rent to myself?

Question

So, this isn't a scheme to evade taxes, I'm considering two possible scenarios so just wanted to get a high level overview if this would make sense legally. I'm considering either buying a vacation rental property and renting it out on a regular basis but living there myself maybe half, or a bit more than half, of the year. I would like to buy the property using a corporation and then rent it out to myself as I think this makes more sense from a legal perspective since it would be rented out to others a good part of the year. The other scenario is buying a property with more than one house on it and renting one out as either a vacation rental or a regular rental and living in the other and then renting one of the houses to myself. My main concern around all this isn't taxation, it's liability as it seems to me it would be better, from a legal perspective, to not be renting out a home that I just own directly myself (not through a corporation). Any info is greatly appreciated!

Bill F. · Answer

@Rick Dane If you care about liability, then the first question is "How much stuff do you have to protect?" as the saying goes, you can't bleed a stone. Second, judgments are only half the battle. Legal fees will still get paid even if you win. Plus law firms don't do defense on contingency, so you'll have to foot the bill along the way, even if you win a judgment in the end.

Before I start thinking about owning things in entities, I'd look more into quality homeowners insurance and an umbrellas policy.

Plus, unless you buy the property in cash, the entity will make financing much more difficult.

Before I start thinking about owning things in entities, I'd look more into quality homeowners insurance and an umbrellas policy.

Plus, unless you buy the property in cash, the entity will make financing much more difficult.

Basit Siddiqi · Answer

@Rick DaneYou normally don't want to hold appreciating property such as real estate within a corporate vehicle.

Natalie Kolodij · Answer

You'll want to talk to both a tax professional and an attorney on this.

Holding assets liek real estate in a corporation long term can create issues with taxable events if you transfer the asset out/to your self.

Self rentals have a place but aren't always beneficial.

Camille D. · Answer

Wouldn't the tenant also decide to sue the "owner", not just the landlord?  I am thinking of how they sue property management company as well as owner.

David M. · Answer

@Rick Dane

Renting out to yourself is a bad idea I believe.  I think that's a self-rental situation which makes the rent active income while your deduction are still passive.  Consult a professional.

If you take Title in a legal entity, then you need commercial loans since entities aren't eligible for residential loans.  Doing the other "recommended" path that others on BP take of using the loan under your personal name just doesn't give you a solid liability limitation of the entity in my opinion.

You can take Title in your personal name and use insurance to protect yourself.  this is a pretty common approach.  You would get a landlord policy and a umbrella insurance policy.  The latter provides liability coverage "over and above" any existing liability policies.  Since everything is under your name, you can put another policies under it (e.g. your personal home, auto, etc.).  Umbrella policies are $1M to $5M in $1M increments.  But, they are quite cheap/affordable since they are providing additional coerage.  See this thread

https://www.biggerpockets.com/...

Your legal defense is basically the same.  You'll want insurance no matter how you take Title.  The insurance company's legal team will doing the defense.  So, if you keep the property in good condition, more than likely the legal defense costs will be borne by the insurance company.

You can try to have a separate company/entity that handles your rental.  You need to setup an agreement between yourself and your own entity.  Then, the entity becomes the landlord.  So, if a renter sues the landlord, ie your entity, there isn't much for them to go after.  But, consult with a professional or two about structuring this.

Hope this helps.  Good luck.

Sean Morrison · Answer

If you do an entity, seriously consider an LLC instead of a corporation. Check out this https://www.biggerpockets.com/...

Rick Dane · Answer

Thanks for the reply, well, I do have enough assets to where it makes me worry but what you're saying makes sense about insurance covering it and being more difficult to finance under a corporation. To me, it seems the cost of legal defense would be the same regardless of whether I own the house directly or through an entity unless I'm misunderstanding something.

One other thing that came to mind is whether it would be possible to own the home directly without an entity but still have an entity that I use for managing the short term rental aspect of it? This would be more a concern for if I were doing it as a short term rental, maybe it doesn't make sense to have an entity involved at all in this case but figured I would ask. Thanks!

If I own a property through a corporation can I rent to myself?

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