Posted by JPiper on December 19, 1999 at 23:23:47:
Sounds like you already know the answer to your question.
Perhaps Gatten or Bronchick can amplify on it for you.
JPiper
Second Opinion on Investment, PACTrust - Question for Bill Gatten - Posted by Chuck P.
Posted by Chuck P. on December 18, 1999 at 21:10:58:
I’m seriously thinking of doing this deal in my name instead of my corporation. Has anybody acquired a property
with their corporation and lived in it? My accountant said that I could have “problems” if I take up residence in
any of my investment properties currently held in individual trusts with my corp as beneficiary.
I will probably live in this property for up to two years with the property being held in a
PACTrust. Also, I will turn one of the rooms into a home office for my corp.
Here are the details of the deal:
The owner just wants out. He’s ready to deed it to me. The place is in great shape.
The mortgage balance is approximately 97K while comps have
the property at 108,900 (11,900 equity). Not enough for a deal, but it
looks good to live in. Monthlies are 807 piti plus 47/mnth assoc fee.
No repairs are apparent. It is a 3 2 1/2 two level (1600 sq ft) with
finished basement.
Thanks,
Chuck
Re: Second Opinion on Investment, PACTrust - Question for Bill Gatten - Posted by Bill Gatten
Posted by Bill Gatten on December 20, 1999 at 19:17:53:
Chuck,
To answer your question, suffice it to say: The home I live in is in a land trust in the seller’s name (the “Farouk Yaqub Trust”). Farouk (Frank) put the property into his land trust (with my assistance) and gave me a 50% beneficiary interest in it (the PACTrust phase). I now lease the property from the trust on a triple net residential lease basis. I operate my entire business from my home (three offices upstairs and four employees); our Area Directors operate from their home offices as well.
There are some real advantages to doing it this way: my tax deductions for home office are at the max. allowable and the money I save on office space pays my house payment. My business address is a “Mail Box Etcetera,” where I can get most of my shipping, duplicating and printing done).
I have all the tax write-off and all the existing equity and principal reduction (in this particular case), and half of any future appreciation there may be when I sell it or refinance it in five years ('could’ve made it two years…or 20…if I’d wanted to).
Why share the future appreciation? Well, consider this: I got the house for a total of one monthly payment out of pocket and with no bank qualifying or credit application (whole deal closed in 2 or 3 weeks). My MAV (Mutually Agreed value) is $349,000 and the house next door (a smaller one than mine) just sold two months ago for $585,000.
BTW, the key to shielding yourself with the PACTrust is to get the property into a land trust in somebody’s name (whomever the borrower is) and create a dual of “co” beneficiary relationship as soon as possible. It’s the co-beneficiary aspect tht best protects you: as the beneficiary interest (having converted to personatly) with the advent of the land trust, becomes non-partionable by judgement creditors (they can sue you and lien any other assets that are not shielded; but its virtually impossible for them to get to a property vested with a trustee in a co-beneficiary land trust).
When you say “…not enough for a deal,” I’d say that depends upon what kind of “deal” you’re looking for. The property you describe has more equity in that 90% of the property’s I buy, which I considered great deals (no cash out of pocket, positive cash flow and half or more of the equity build-up from principal reduction and appreciation).
But remember, the PACTrust is a holding vehicle; not a flipping vehicle (unless you do all your own paper work and don’t need Escrow, title insurance, legal support, etc.).
Bill Gatten
Did you notice how these other guys who answered your post are really pushing for that PACTrust option?
Re: Second Opinion on Investment, PACTrust - Question for Bill Gatten - Posted by JPiper
Posted by JPiper on December 19, 1999 at 09:50:38:
Can’t see a single reason to buy a house you’re going to hold AND live in with your corporation. Aside from other complications you would also manage to lose the tax advantage to individuals for owning your own home. Why???
Do it the other way. Buy it as an individual. Rent space to your corporation if your corporation is actually a functioning entity.
JPiper
Re: Second Opinion on Investment, PACTrust - Question for Bill Gatten - Posted by Chuck P.
Posted by Chuck P. on December 19, 1999 at 22:58:04:
I would “hold” the property in a Limited Partnership with the corp as general manager. I don’t want to become a nice, brass target for those who would sue for whatever reason. Yes, I have had somebody threaten to sue due to a partner’s actions. I would have been insulated by my corp. That’s why. Things can and will go wrong.
Have you ever seen those individuals on the tax roll with an excess of a million dollars worth of real estate in their own name? Makes you wonder, especially if they have high risk occupations (i.e. doctor, etc. ). I consider this to be a risky business and I seriously consider risk abatement in the event the somebody does sue and win.
I’m not out to use the corp as a shield to do whatever, it’s just insurance. Also, a corp has more tax advantages than an individual. People complain about double taxation ( C corps ), it is an issue, but with proper planning it’s not as bad as some people put it.
I will, at the least, take possession in trust and hold the beneficial interest in my own name. I was just bouncing options to the audience. Thanks for your comments.
My corporation is a functioning entity and supports a number of deals and other business activities.
Thanks again,
Chuck