One of the first decisions you have to make when buying a property in the US is what name you are going to buy it under. A property can be purchased in a personal name or in the name of a company. The most used for these cases are: LLC, INC or Corp.
Investment properties, almost without exception, must be acquired through the use of a corporation or other entity. The main advantage of using an entity to hold ownership of investment properties is the ease with which ownership can be sold or transferred. Additionally, owning property in an entity may provide some measure of protection from personal liability. For these reasons, it is important to seek professional guidance when making this decision.
Here are some advantages of buying through a company:
You protect yourself from possible lawsuits related to the property. That is, in the event of a lawsuit, they can only go against that property and not against you, your other property or personal assets.
You can reduce the tax impact at the time of a possible sale.
You’ll have flexibility when planning your taxes, in terms of transferring property interests to family members and others.
Inheritance taxes will be reduced, therefore, upon the death of the owner of the company the legal entity never dies, thus reducing the amount of inheritance tax.
Should you open a company for each property you buy?
Professional investors often form a company for each property they purchase. This is done to limit the legal liability of each of the properties. If multiple properties are under the same entity, the liability of one could expose the other properties. Additionally, forming a company for each property provides more flexibility in how properties are managed and operated.
For example, one company might be used for rental properties, while another might be used for fix-and-flip investments. However, due to the costs of starting, running and maintaining these companies, it is common for investors to hold multiple properties under one company.
Ultimately, the decision to form a company for each property depends on the number of properties owned, the type of properties owned, and the investor’s overall risk tolerance.
Here are some estimated costs of starting a company to buy real estate:
Approximate opening cost between $500-$900
Annual renewal cost ranges from approximately $200-$400
Accountant fees for administration and annual tax declaration (before May 1) depend on the service and structure requested by each client, but range between $500-$1,000
If I bought in a personal name, can I transfer it to a company?
If you are thinking of buying property for your business, it is important that you consult a professional to determine the best legal structure for your business.
If you have already bought the property in your name, it is possible to transfer it to your company. However, it is important to consult with an accountant and/or lawyer to analyze your specific case and determine the possible legal and financial implications. There may be implications.
