Landlords can benefit from incorporation
By Jeff Ostrowski • Bankrate.com

Feb. 1, 1999 -- Incorporation can be cheap protection for landlords, says Frank Rodriguez, a lawyer and head of Corporate Creations, a Palm Beach Gardens, Fla., firm that helps companies incorporate. "If a tenant trips over a sprinkler head, for instance, and files suit, you're personally liable."

If, that is, the landlord owns the property in a sole proprietorship. If a corporation owns the property, then a litigious tenant or other creditor could lay claim only to the assets of the corporation. The landlord's personal property would be protected from liability.

Rodriguez gives real estate investors the same advice that he offers other entrepreneurs: Avoid sole proprietorships, general partnerships and C Corporations like an overpriced property. Investment properties should be placed in S Corporations or Limited Liability Corporations, he says.

Incorporating real estate provides tax advantages in addition to liability protection. David Dweck, president of the Boca Real Estate Investors Club in Boca Raton, Fla., says depreciation often means he reports an operating loss on his properties, which lowers his tax bill. Instead of incorporating each of the two dozen properties he owns, Dweck has one holding company for all of his properties. He called the strategy a "calculated risk."

"Each property should be its own entity, but that costs so much money," Dweck says.

Incorporation expert Rodriguez says landlords can save money by placing a few properties in one corporation. If an investor were to buy four duplexes, for instance, he might form two corporations that each own two duplexes. "It depends on the perceived risk," Rodriguez says.

Commercial properties should be owned by separate corporations, Rodriguez says, because constant visits from employees and customers raise the odds of a personal-injury suit.

He suggested that landlords look at incorporation as liability insurance, just as other types of insurance protect investors against fire and storms.

Rodriguez: "Where else can you buy insurance for $200?"

Jeff Ostrowski is a freelance writer based in Florida
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-- Posted: Feb. 1, 1999