Ownership of a rental property can take many forms and is a significant question in purchasing an income property. Options include holding title in a corporation or personal ownership by one or more parties as joint tenants or tenants in common. With each option there are pros and cons.
CORPORATE OWNERSHIP
At the outset, many buyers believe owning a rental property in a corporation is the preferable method, however there are factors to consider. Owning with a corporation will include extra fees for the registration of the corporation as well as annual tax returns which can be expensive (compared to personal tax returns). Speaking to an accountant is very important if you are considering owning the property in a corporation. In addition, many banks will require a greater down payment from a corporation (25-35% down are common) as compared to personal ownership which could be 20% down or potentially less. Generally speaking a corporation offers legal liability protection however, with a rental property there are few risks that are not covered by the house insurance policy. A corporation is generally only advisable where there are multiple properties under ownership.
PERSONAL OWNERSHIP
A property can be owned by one person or a group of people as investment partners. The benefit of personal ownership is that each owner shares the tax consequences in any given year and simply includes such tax in their personal tax return (no extra costs for filing a corporate tax return). Typically less down payment is required and ownership can be structured such that one party holds title but owns the property in trust for other investment partners. Most, if not all, tax deductions are available to personal ownership situations as well as corporate ownership. With less down payment required in many cases, fewer annual costs, and similar tax deductions available, owning a rental property in a personal name is often advisable over corporate ownership.
Mike Miller
Matlow, Miller, Cummins, Thrasher
519-621-2430