starting a corporation?? - Posted by garrett

Posted by John Corey on May 19, 2006 at 05:39:36:

I made a mistake when typing my reply. I did not mean to say or even imply that you should use an LLC vs. a corporation.

John Corey

starting a corporation?? - Posted by garrett

Posted by garrett on May 17, 2006 at 21:18:10:

Hi Everyone!
I have around $100,000 in liquid assets to put towards a 12 unit apartment building
asking price = $360k
I was thinking about starting a corporation to purchase the building.
Would it be possible to get a loan based only on the 100k down payment? (No other collateral because of limited liability?)
general ideas greatly appreciated!


Re: starting a corporation?? - Posted by Adrian

Posted by Adrian on May 20, 2006 at 16:24:02:

Hey Garrett
From what I have seen, lenders want you to hve a corp for at least 2
years and in good standing before they will give you a loan like that.
The 100k probably would help but not that much

Re: starting a corporation?? - Posted by John Corey

Posted by John Corey on May 19, 2006 at 05:32:10:


Most lenders will still want you to guarantee the loan. Understand that providing such a guarantee does not mean you have the same liability as the owner when it comes to matters unrelated to a loan default.

If you do obtain a loan in the name of the LLC (definitely possible given the down payment) you are not protected from future liability. Some of the liability comes from how you manage or control the property. If you actively manage the property and make a mistake you can still be liable even if the property is owned by the company.

So, funding is possible given the numbers. Liability is a more complex topic and you are only scratching the surface if the loan is in the name of the entity.

What state is the property in? Depending on the condition a lender might be happier with a smaller down payment and some cash held in reserve for repairs, running costs, etc. That could be a better idea for you also.

John Corey

Re: starting a corporation?? - Posted by John Corey

Posted by John Corey on May 21, 2006 at 11:56:05:

Adrian is largely correct. Each lender can ask for something different but there is a common assumption about 2 years.

What does the 2 years really mean? Two years of tax returns or maybe 2 years of financial statements produced by a CPA. Hence it is not 2 years on a clock. It might be closer to 3 or maybe slightly less than 2 if you have two tax returns with some good numbers.

It also means 2 years with a distinct tax ID separate from your SSN. Hence an sole member LLC with no tax ID is not as good of a fit. Best is the LLC is treated as a partnership and files independently a K1 which is then reported on your tax return. Same taxes due but a start of a track record for the legal entity. You could just go the route of the CPA documentation. Just do not put down your SSN when applying for credit in the name of the business as that will cause the LLC not to have any history building up.

Consider getting some business accounts (Home Depot, etc, gas station card, etc).

John Corey