Question by lithium630: Incorporate to buy a multifamily property?
Is it true you should put each multifamily (4 family or less) under a different corporation?

Best answer:

Answer by teenriodoll
YES!!!! YES!!! YES!!! YES!!! YES!!!

Unless this is a quick flip for profit and even then I would put the property in the name of an LLC=Limited liability Corporation or a limited parntership. The reason is simple. Taxes and liability. Once you are in the chain of title you CAN be sued, even after you sell the property. But if the owner was a throwaway LLC then you are less likely to be sued.

Example, I was looking to purchase a property years ago. Did a title search and found the second deed of trust on the house had this long disclaimer about EPA and environmental. I did some research and found that if the property had a EPA cleanup problem, nothing prevents the U.S. Government from collecting from a former owner ever!!! Even filing bankruptcy does not wipe out an EPA claim.

Also, i bought a house with a partner who did not want to spend the money to form a LLC. I insisted or no deal. We put in LLC and two things happened. One the property had the plastic PVC piping problem that our buyer wanted us to replace all the pipes in a single family home that we were selling for $ 200,000. The cost $ 40,000. We said no. The eventual purchaser asked for and we agreed to a radon test. Well the property HAD RADON!!! Luckily we found an expert paid $ 800.00 and remidated the problem. I kept the LLC did 3 more deals in it and closed the company. I am not personally liable on this property and since the LLC has no assets there is not a likelihood of suit ever in the future. If we were in the chain of title individually, we would could be liable in the future from a future buyer. DONT BUY WITHOUT protecting yourself. You will sooner or later get sued. It is better to have in LLC or LLP then your own name. Enough said on liabilty issues.

Next, let’s talk about tax advantages. In many states you can have a one person LLC. Or be creative. another business or a family member or friend can be members in the Limited Liability Corporation. You can write off more and also maintain control by doing it this way. You do not have to report on Schedule-E instead you get a K-1 and the IRS has said that they audit K-1 less than filers with entries on Schedule-E.

So do it right. THis multi family could be lucrative for you. Set it up right.

Thanks and good luck with your investing.

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