Skip to content
×
Try PRO Free Today!
BiggerPockets Pro offers you a comprehensive suite of tools and resources
Market and Deal Finder Tools
Deal Analysis Calculators
Property Management Software
Exclusive discounts to Home Depot, RentRedi, and more
$0
7 days free
$828/yr or $69/mo when billed monthly.
$390/yr or $32.5/mo when billed annually.
7 days free. Cancel anytime.
Already a Pro Member? Sign in here

Join Over 3 Million Real Estate Investors

Create a free BiggerPockets account to comment, participate, and connect with over 3 million real estate investors.
Use your real name
By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.
The community here is like my own little personal real estate army that I can depend upon to help me through ANY problems I come across.
Real Estate Deal Analysis & Advice
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 9 years ago on . Most recent reply

User Stats

29
Posts
6
Votes
Yoann Mamy Randriamihaja
  • Cohoes, NY
6
Votes |
29
Posts

Buying a property through an S-corp

Yoann Mamy Randriamihaja
  • Cohoes, NY
Posted

Hi All,

I was wondering if you could help me analyzing this deal.

It is a multi-family (4 units) that is owned by an S-corp through a land contract.

We would be buying the S-corp for ~$20k and would continue the payment of the existing 30 years mortgage.

Note that the $20k are significantly less than what it would cost to go through traditional financing with 20% down payment and closing costs (definitely a plus).

I ran the numbers using conservatives rents, 12% vacancies, 15% maintenance/repair and 10% for property management.

If we do the PM ourselves, I find $100 cash flow per door and $50 if we outsource the PM.

One concern is the property price which is on the high side for the area (around $10k to $15k, accounting for the cost of repairs needed).

Which brings me to the questions I have for you:

1) Can it make sense to "slightly" over pay for a property if it cash flows and if the deal structures allows you getting in much more easily?

2) Do you have any advice on what due diligence are needed when buying an S-corp?

I greatly appreciate the help of the BP community! This would be our second deal with a completely new deal structure so I'd rather do my home works.

Thanks,

Yoann

Most Popular Reply

User Stats

2,929
Posts
3,689
Votes
Linda Weygant
  • Investor and CPA
  • Arvada, CO
3,689
Votes |
2,929
Posts
Linda Weygant
  • Investor and CPA
  • Arvada, CO
Replied

Owning rental property in an S-Corp, where that is all or nearly all of the income, can invalidate the S election.  S-Corp's are intended for active self employment income.  Having a significant amount of passive income can trigger the IRS to revoke the S election, making your corporation a regular C Corp, subject to double taxation and extra capitalization requirements.

Unless you have a way of pulling in a significant amount of non-passive income into this S-Corp, I'd walk away from this deal.  Or buy the property outright and leave the S-Corp alone.

Additionally, as @Wayne Brooks said - it is difficult to know if an established S-Corp has some large liability that hasn't been disclosed - a large balance on a corporate credit card, a pending lawsuit or unpaid payroll taxes (yes, an S Corp MUST do payroll) can ruin your whole day.  

Loading replies...