Building Shop on Personal Property

zipfactor · Feb 23, 2018

I need to expand into a larger shop for my business. I'm interested in building a shop on my property, though I'd be using business assets (cash) to fund. Is it possible to construct a building (business asset) on personal property?

Before starting construction, I would make sure that the building could be insured.

Thanks for the input.

TDegenhart · Feb 23, 2018

I guess I don't understand the issue. You have to own a piece of property to build on. Build it on someone else's property and they own it. Is this a residential property? If so, then the issue is can you have a business in a residential area. That is zoning and covenant controlled.

Tom

SND · Feb 23, 2018

As said, so long as there's no zoning issue with the type of business, no reason not to. How you finance/fund it is up to you and your accountant.
Insuring shouldn't be any problem either, just get a commercial policy for it, its only trickier, aka more $$$$ if its directly attached to your house, many companies won't touch that.

zipfactor · Feb 23, 2018

TDegenhart said:
I guess I don't understand the issue. You have to own a piece of property to build on. Build it on someone else's property and they own it. Is this a residential property? If so, then the issue is can you have a business in a residential area. That is zoning and covenant controlled.

Tom

It is a residential property that I own. I live in a rural area, zoning isn't an issue (luckily).

zipfactor · Feb 23, 2018

SND said:
As said, so long as there's no zoning issue with the type of business, no reason not to. How you finance/fund it is up to you and your accountant.
Insuring shouldn't be any problem either, just get a commercial policy for it, its only trickier, aka more $$$$ if its directly attached to your house, many companies won't touch that.

The building would be unattached, probably about 600 feet away.

Thanks for the input!

DavidScott · Feb 23, 2018

That is what I did, but the only interest the business has is leasing the personally owned building. DO NOT let the business own anything about the building.

Bobw · Feb 23, 2018

You need to spend a few hundred dollars and talk to a good business lawyer, that is familiar
with your area and knows all the ins and outs... One that knows how to navigate whatever
zoning/local BS you'll have to deal with, how to structure companies and LLC's so that everything
works out in the end.. A GOOD lawyer will also know all the important people to talk to, and how
to word things so that you can get what you want/need...

You are looking at dumping a big wad of cash on a building.. It would really suck if you couldn't
use it when you are done.. DO IT RIGHT, spend a few bucks and talk to somebody that KNOWS this stuff
inside and out, somebody that does these types of things EVERY DAY...

That is what I did, but the only interest the business has is leasing the personally owned building. DO NOT let the business own anything about the building.

Stuff like that is what a lawyer does.. My lawyer had me set up an LLC to own the building... It was pretty
painless, she did all the work, didn't cost much.

garyhlucas · Feb 23, 2018

Just a thought for you. My brother-in-law built a shop on his residential property about 100 feet from his house. I warned him against it, because if he wanted to sell his contracting business he couldn't sell the building with all of its installations unless the humongous house goes with it. 20 years later he realizes it was a huge mistake and the building has almost no value as a result. On the other hand my dad built his building on commercial property spending very little money building it ourselves and it was recently sold for over one million dollars, WITHOUT the business!

Tony Quiring · Feb 23, 2018

Check with the building a, d zoning department and ask lots of questions as there may be limits or guidelines to sizing or just about anything that could mess you up.

Others suggest legal advise as do we.

The cost to build the building will be more than the increase in real property value but the assessors will just add the cost of building to tax bill so tax expert could provide advise.

Buisiness should pay rent so real property remains personal so better protected but local later advise there.

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drom68 · Feb 24, 2018

I did something similar. I built the building (personal funds) on my property and the business leases. I live in a rural area as well and getting a lawyer would have complicated the whole deal. I talked with the township and they approved with few questions. I filled out and submitted the building permit, I made sure I had all the information the township required to include sketches and building blueprint. Lots of small details that really depends on what you want to do. I do/did consulting and the shop was a secondary deal, this year I am switching to the shop as being the primary business. My accountant helps us in making sure we don't get into any issues.

The biggest issue I had was 3phase electrical in a rural area. I ended up getting 3phase convertors and my electric bill is minimal.

Bondo · Feb 24, 2018

I have a 42x60 building on zoned residential property and recently approved for a 24x42 addition. The biggest thing in getting approved, at least here in NJ is neighbors. They can block you if your an ass or if they are an ass, or if the township committee is an ass.

So if everyone is nice and works together, it's a pretty smooth, possibly long, thing to do.

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zipfactor · Feb 24, 2018

DavidScott said:
That is what I did, but the only interest the business has is leasing the personally owned building. DO NOT let the business own anything about the building.

Was the building constructed using personal funds or business? What you're saying makes sense, and was the arrangement I had in mind.

I would consult with a lawyer first, however.

gustafson · Feb 24, 2018

Just because there is no zoning does not mean there are no land use restrictions. As far as legally building, only your local code enforcement can tell you for sure. Small businesses can get away un permitted un noticed for a very long time but it does not make them 'legal'

If this is not an issue, pretty much no one cares. IRS doesn't care. As long as it is a legitimate business expense they will be ok.

As far a insurance and liability, again, if you are in conformance with local laws, usually insurance will be ok, as long as they know they are insuring a business building.

If you start an S Corp or LLC, this can insulate the property from the business and vice versa. If as noted, the business leases the space, then there is some protection of your house should the business get sued, and the business if you get sued.

So out in the sticks, your average building inspector tends to be laid back about things, so walk in and ask what is legal without saying 'so I'm running this business on my personal property'

Guest · Feb 24, 2018

DavidScott said:
That is what I did, but the only interest the business has is leasing the personally owned building. DO NOT let the business own anything about the building.

That is the best way for tax reasons, use personal money to erect the building then lease it to your business.

DDoug · Feb 24, 2018

zipfactor said:
The building would be unattached, probably about 600 feet away.

Thanks for the input!

Then have the property split off.

Bankrupt that business, and you can be sure the lawyers will come a calling for your house.

gustafson · Feb 24, 2018

digger doug said:
Then have the property split off.

Bankrupt that business, and you can be sure the lawyers will come a calling for your house.

I was thinking this also, that if you had lot square footage and road frontage, at least to make it subdividable in the future.

DavidScott · Feb 24, 2018

zipfactor said:
Was the building constructed using personal funds or business? What you're saying makes sense, and was the arrangement I had in mind.

I would consult with a lawyer first, however.

Personal funds, this was before the business could afford anything, and right before we incorporated. I never talked with a lawyer but did talk with my accountant to do all I could to reduce tax liability. I am rural so things are pretty laid back on little buildings.

gbent · Feb 24, 2018

With a 600' separation it sounds like you have a reasonable sized piece of property. Think into the future for some number of years. What is your exit strategy for your business? Or for your building if your business becomes sufficiently successful it outgrows your location? If your building can be split from your residence it may make selling your business easier, or allow you to sell the building if you sell your business to someone who doesn't want the building.

Just because your area isn't zoned now doesn't mean it will never be zoned.

I agree with all those who say build the building personally, and then lease the building to your business. This allows you an avenue to receive income from the business without paying SS, WC, UC, or other taxes on that income. If you have all your available cash in the business, the business can even loan you your money so it doesn't have to be taken as income and rinsed through the tax man first.

zipfactor · Feb 24, 2018

Dualkit said:
That is the best way for tax reasons, use personal money to erect the building then lease it to your business.

The land it's on could be leased as well I'd think.

If I were to use personal funds, I'd have to run payroll to get that money out, which entails getting hit with payroll taxes. Paying with business funds would avoid that penalty by roughly 40%. So by paying for the building with personal funds, I would essentially be paying 40% more for the construction.

Leasing the land would allow for lower rate taxable income versus payroll, albeit leasing a personally-funded building would allow for more per month. I would need to run the numbers to see what made sense: Taking the hit by transferring the money to personal funds then leasing the building back to the business at a higher per month rate OR pay for construction with business funds at 40% less and leasing only the land to the business at a lower per month rate.

From a long term perspective (5 years), I expect to be moved into a larger building which will more than likely be leased. I'll have to run the numbers and see.

zipfactor · Feb 24, 2018

gbent said:
With a 600' separation it sounds like you have a reasonable sized piece of property. Think into the future for some number of years. What is your exit strategy for your business? Or for your building if your business becomes sufficiently successful it outgrows your location? If your building can be split from your residence it may make selling your business easier, or allow you to sell the building if you sell your business to someone who doesn't want the building.

Just because your area isn't zoned now doesn't mean it will never be zoned.

I agree with all those who say build the building personally, and then lease the building to your business. This allows you an avenue to receive income from the business without paying SS, WC, UC, or other taxes on that income. If you have all your available cash in the business, the business can even loan you your money so it doesn't have to be taken as income and rinsed through the tax man first.

Good point, I didn't even think of a business loan to myself personally to avoid taxes. That answers my previous post.

And that's why I come here, clearly there are more seasoned businessman present.

Apparently I haven't found a good accountant yet, the few I've had have been less then helpful when it comes to saving me money and getting creative.

Building Shop on Personal Property

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