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Buying Commercial Property - Buy as a couple vs buy under the business?

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  • Buying Commercial Property - Buy as a couple vs buy under the business?

    The Facts:
    1) I am a doc and my wife has a craft goods business.
    2) My wife has been renting a commercial office for ~1500/month
    3) The owner told us he plans to list the property for sale and we offered to buy it instead (300k)
    4) The math adds up and we want to purchase the property as an asset (my wife will continue to occupy the space)
    5) Our loan goals are to put 20-25% down and get a longer duration loan (15-20 years)

    The Questions:
    1) Should my wife and I buy the property and title it as owners in joint total or buy it under her business LLC?
    1a) Exclude considerations such as divorce, pre/pot-nup, and intra-marital asset protection from the above answer. We have an excellent relationship and I do not need to protect myself against my wife and vice versa.
    2) Should I get a commercial loan or small business federal loan? We'd like to close quickly and I was advised that small business federal loans take 3-4 months to go through with the sole advantage of being 20 years loans as opposed to private banks loans being 15 years.
    3) Our goals are to maximize the tax advantages of my wife's business via depreciation or even double depreciation up front.

    Thank you for the feedback.

  • #2
    Is the property intended for her business only? She needs to be pulling in enough income to justify the ordinary/necessary expense of a $300k property for her business only. Otoh, if you are purchasing to also rent to others, this could make sense. I am not sure what you are referring to re: the math adds up, it c/b either.

    w/n put under her business LLC for rent to others, w/make sense for her business use only, considering the above caveats. Given that you appear to be prioritizing tax over investment (net worth), leads me to believe may not meet the ord/nec threshold for biz use only.

    Depending on the state you are in, may or may not recommend joint ownership, so many considerations.

    Not enough info to comment on loan route. No way owner will consider an installment sale? No way you can pay cash?

    Also might consider a QJV, otherwise, just d/n/h enough info. I’d throw this to your CPA.
    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Originally posted by olbaid07 View Post
      The Facts:
      1) I am a doc and my wife has a craft goods business.
      2) My wife has been renting a commercial office for ~1500/month
      3) The owner told us he plans to list the property for sale and we offered to buy it instead (300k)
      4) The math adds up and we want to purchase the property as an asset (my wife will continue to occupy the space)
      5) Our loan goals are to put 20-25% down and get a longer duration loan (15-20 years)

      The Questions:
      1) Should my wife and I buy the property and title it as owners in joint total or buy it under her business LLC?
      1a) Exclude considerations such as divorce, pre/pot-nup, and intra-marital asset protection from the above answer. We have an excellent relationship and I do not need to protect myself against my wife and vice versa.
      2) Should I get a commercial loan or small business federal loan? We'd like to close quickly and I was advised that small business federal loans take 3-4 months to go through with the sole advantage of being 20 years loans as opposed to private banks loans being 15 years.
      3) Our goals are to maximize the tax advantages of my wife's business via depreciation or even double depreciation up front.

      Thank you for the feedback.
      1. You'd have to talk with an attorney who is familiar with the law in your area. This is mainly a liability/tax question and is going to be dependent on geography to give a good answer.

      2. SBA loan isn't going to work unless your wife is going to occupy more than half of the building. Based on the numbers you've mentioned, I'm assuming that this is not just a 1500sf standalone building she's renting. Also not sure if it's something unique where you are, but the typical amortization for commercial loans has always been 20+ years in my experience. SBA loans are slow because you are bringing the federal government into the equation. If speed is the goal, just get traditional financing. The only advantage of SBA loans are they're easier to qualify for (assuming that's not a problem for you), and they have some favorable terms (less money down in particular).

      3. If you want to maximize depreciation, you can do cost segregation which allows you to depreciate the property and its components faster than traditional straight line depreciation. Two notes on this. First, there is some expense to it as you're going to have to get an engineer to do an assessment and it will make the taxes a bit more complicated. Also, keep in mind that if/when you sell the property, you will need to recapture all of the depreciation you write off, unless you do a 1031 exchange. Not saying it's not worth doing, but just understand the costs associated with it.

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      • #4
        If you buy the building and want to do a cost segregation bonus depreciation it must be done this year or next as the bonus depreciation law will sunset starting in 2023. There are CPA firms that specialize in cost seg studies and they can tell you if the small cost is worth it for the type of building you are buying.

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