March 1, 2014
Individual or personal ownership is a common thread of property ownership among most of the people. Even when people decide to get into the mainstream real estate business, they prefer to start by personally owned properties. However, trends have changed. Apart from the banks, there are several privately owned companies , which also provide loans and investments for property ownership.
Why Take The Chance?
Real estate is a field which never dies. The conservative thought that ‘this business is outdated because even your hairstylist is in it’ is now nothing more than a myth. You can use a company for investment in order to stay personally off the grid. Many people, with no real credit scores, started their business by using a company for investment, and later on they became owners of empires.
What An Investing Company Does For You?
The property owning companies bring several advantages to the real estate investors. Although, a person has to pay several other charges while working as or with an investment company, the costs of these fees and the costs of a personally owned property differ a lot.
1. Tax Benefits
Most people use companies to invest in properties due to the tax benefits. The investment companies save around 47% of the potential profit, which you would otherwise pay as taxes. When you use a company to invest in a property, you actually have to pay dividend tax and corporate tax, which is far less than the income tax.
2. Transferring the Company
Transferring the Company is a very different concept than property caretaker or ownership transfer. When you want to transfer the ownership of your property to one of your family members or your son, you will have to pay capital gains tax to the government. However, if a company has invested in that property, then your son can directly subscribe to your property with as many shares as you want. The ownership will transfer later according to your will.
3. Dividends
When you use a company for property investment, you and your shareholders receive the profit in a divided form. The tax on this profit is applied on a yearly basis. However, you pay tax only for the profit that you receive each year. If you don’t receive any profit in any year, then you will not pay any tax. With a broader vision, you make a bigger investment through your shareholders, however you receive profit on the basis of your personal investment and pay tax for your own profit only, which increases the profit percentage for you.
4. Property Development Profit
When you receive a limited percentage of profit, because of the mortgage, then your profit will not be used in property development. However, once you pay off the mortgage, you start receiving 100% profit. Now, the company gives you 2 options. Either invest the profit in some other business (which actually is the expansion of your real estate business under the company name), or to take that profit as dividends. The choice and preference is yours!