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Hi,
Assuming you already have a registered corporation holding properties of which you have 100% of the shares, how would you purchase an apartment building (say 10-plex) as part of a new, first Joint venture deal:

– Register new Corp. for the JV partners, and purchase under this new corp. OR
– Use your existing Corp. and just add 50% of JV property to it every time you purchase as part of a JV
(and the other investor can do the same – register a corp. and put 50% of the property there. but who is on title in this case? can to corporations be shown on title?) OR
– Put the property in a registered Trust if only one of the partners is on title (the trustee), for example (not sure about this option how it works)

I heard about a rule of thumb saying you should register a new Corporation every 5 properties. In other words not to purchase more than 5 properties under the same corporation. not sure about JV rule/recommendation with regards to registering a new corp.(?) Also, not sure if it is really supposed to protect you much more
not putting everything in one corp. I’ll have to discuss this with my lawyer too, however it is always great to hear other investors’ point of view first.
THANKS.

1 Thought on Rental Business: Joint Venture (JV) Question – Register new Corporation for new JV OR use your existing Corp.?
  1. Reply
    loanmasterone
    February 12, 2014 at 1:18 am

    If you plan to purchase the apartment using the corporation then the corporation must qualify for the mortgage loan the same as an individual. the corporation must be able to prove that it is able to make the monthly mortgage payments with federal income taxes for at least 2-3 some lenders might require 4 years.

    You would also have to produce bank statements and proof of income for the corporation.

    Some lenders will allow you to purchase property through your corporation but you must give them a personal guarantee this is called a recourse mortgage/loan as you would personally be responsible for the monthly mortgage payment each month if the corporation failed to make the monthly mortgage payment for some reason.

    Then there are the non-recourse mortgage loan where the lender will rely on the corporation for repayment of the mortgage loan. Under this procedure you are not required to give or sign the loan docs as a personal guarantor.

    Of course if the bank will not allow the corporation to apply for and get mortgage approval, upon closing of the mortgage and you signing the loan docs, you may then place the apartment into the corporation and make the corporation the owner by changing title through a title company from your name to the corporation. Doing this will not change the responsibility of you to make the monthly mortgage payments.

    This rule of thumb of putting every 5 properties into a corporation will not work very well if the corporation has no financial history and can not prove income or the ability to pay the monthly mortgage payment.

    Real Estate Investment Trust (REIT) place all their properties into a single entity so as to grow the trust so it may qualify for the eventual purchase of other properties.

    I hope this has been of some use to you, good luck.

    “FIGHT ON”

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