Property Investment via Company Ownership
With the recent trend in rising property prices, many people have started investing in properties, mainly residential, for rental and/or capital appreciation. Property investments were previously accessible to the richer and older individuals who have substantial savings, but now, with innovative financing packages offered by banks and developers, buying properties by young adults are made possible.
In the recent 10 years, there have been many investment gurus who came to teach, especially employees and young individuals, how to invest in properties to create retirement income, or more fondly known as “passive income”.
With this new trend of property investments, owning one property by these individuals is just the beginning. Rather, it was told to me by many loan officers and property agents that these individuals are in their early 30s, and owning an average of 6 properties.
Many of my friends and clients told me that they heard from their friends that it is more “beneficial to own properties under a company rather than individual” but they do not understand why. This article is to give property investors an idea of why it is preferred by many investors to own properties under a company.
Benefit 1: Expenses
The first obvious benefit is using expenses to reduce rental income, ie to declare lower profits, hence paying lower taxes. Unless an individual declares his/her rental income as business income, expenses are generally not deductible against rental income.
One example is the furnishing of the property, like air conditioners, furniture etc. There are capital allowances attached to these assets, used to reduce the profits of the company. To an individual, such items are generally not allowed to reduce from rental income.
Benefit 2: Easy of disposal
An average time for an individual to sell a property is 6 months, whereby you need to complete the title transfer before the transaction is completed. Whereas, if you want to dispose a property owned by your company, the transaction can be much faster, depending how fast can the buyer settle the full payment of the purchase price. You will need to transfer your shares of the company to the buyer and complete the share transfer process. For this process, it is advisable that you get a good lawyer to write up the Sale & Purchase Agreement.
Benefit 3: Succession planning
This is very similar to disposal of shares but to spouse or children. Therefore, the most common idea is to transfer the shares without receiving any money. This can be done fairly quickly, possibly even before the individual passes away. With this, transactional complications of property transfers within a Will or Estate, such as time delay and high costs, can be avoided.
Having said the benefits, there are also costs such as incorporation of a company, and other statutory expenses that comes along with maintaining a company.