Should You Use S-Corps in Real Estate?
It’s an important thing to think about, S-Corps in real estate.
What benefit do they bring to the table, if any, and how can you tell where they're needed?
I specialize in wealth management and asset protection. I’ll explain why S-Corps have no place in real estate investing, but why that’s not necessarily a bad thing.
S-Corps are meant for active businesses. HVAC companies, drop-shipping, your jewelry business, but not so much for an income model like real estate. There are plenty of resources explaining why they exist and why they might be right for you, such as a general rule of thumb that if you’re not making more than around 40–50k in net income, it’s typically not worth looking into. Of course, every situation is different.
What do I mean by “meant” for active businesses? Can you not be actively involved in real estate? Well, yes, but it would only serve to needlessly make things more difficult.
For real estate, think of an S-corp like a noble gas on the periodic table. It does fine on it’s own, but does not bond or work well with other elements. In the world of real estate, this is a big issue. S-Corps cannot be owned by other entities. Ownership can be easily seized, and this makes most of the anonymity and tax saving methods available otherwise; obsolete.
Not only that, but assets are highly taxed when moved out of the S-corp, not to mention you’re taxed on reinvested profits.
If you’re running a business that’s doing well, an active business, it could potentially be a good option. Keep in mind the only reason S-corps exist is solely to save money on taxes; they do nothing for asset protection. Those savings are also coming from reduced social security contributions.
Going with an S-corp in your real estate journey could potentially be a death wish. If anything goes wrong you don’t have a shield up in place, and you could lose everything, including the majority of your personal assets.
Having a proper structure in place is crucial, and there’s no reason that the avenue designed to *save* taxes should end up costing you more; while also increasing your liability risk.
If you have any questions about what a “proper structure” might look like, feel free to leave a comment or send me an email in private, I’d love to steer you in the right direction.
Remember, every situation is different and there will never be a one size-fits-all strategy.
Thanks for reading.
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