Using an investment vehicle for your property
venture is a topic that I wished I knew earlier. So far, none of the properties
that I have purchased utilizes an investment vehicle. Now knowing some benefits
of this method, I may consider this in my next purchase.
I discovered this tip from my property agent (who
was just as clueless as myself!) who casually ask me the question, “I have been
servicing a loyal client over many years, every time he makes a property
purchase he would form a company and buy in the company name. Do you know why?”.
I set out to research this topic and to my
surprise, I discovered a wealth of advantages in doing so! Here are some value
information that I discovered.
Overcome
Local Property Ownership Laws
An experienced property investor friend of my
mine shared with me once that in the Iskandar Region in southern Malaysia,
foreign property owners must resell their properties to a local below RM1mil.
Some savvy investors therefore incorporated a local company to purchase the
property and later sold the company (with the property as an asset) to other
investors! While I can’t verify the story, this might be an interesting point
to research when investing in foreign properties.
Tax
Exemptions
To encourage small businesses, countries in South
East Asia have special tax laws where new companies enjoy tax exemptions for
the initial years of incorporation. The income generated from the property
would therefore be tax-free for the first few years!
Tax
Reductions
In most countries, companies enjoy a much wider
variety of tax breaks or deductions. As a property investment company, many of
the expenses incurred can be expensed in the company books. Examples of
expenses just to name a few are, utilities, repairs, agent fees, maintenance
fees, property taxes, furnishings and renovations.
Property
Sharing Agreement
Direct property investments require high upfront
capital. Therefore a group of investors may pool resources together to share in
a property purchase and profit together. By incorporating a company as an intermediary,
the shareholders can easily draft terms and agreements into the company’s
shareholder’s agreement. The share of the property can also be easily
apportioned by using company shares. In the unlikely event of death, bankruptcy
or major illness of one shareholder, the interest of the remaining shareholders
is still protected using company law.
Larger
Pool for Investment
By incorporating a company to pool resources
together, a group of investors could potentially negotiate for better prices
with developers by making bulk purchases. Perhaps with a larger pool, the group
of investors may even acquire costlier properties with higher yields such as
shop houses or even buildings!
Enjoy
Company Specific Benefits
Many governments support small and medium businesses
by providing assistance to support their businesses. This may take the form of
tax rebates, innovation credits or xyz. A good example is Singapore where the
government has encouraged local businesses to improve productivity through the
PIC scheme. The scheme provides up to 60% grants to businesses that invest in
innovative ways to enhance their business productivity.
Perhaps one day, I could manage my own mini REIT
through this method! I hope the day will come when I can blog about this!
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