Pros and Cons of Investing in Real Estate through a Limited Company
Investing in real estate is getting hot right now as prices are soaring in different places all over the world. Even, in the United States of America, after the real estate prices crash in 2008, properties are now getting back their value and are starting to sell like pancakes again. There is a lot of reason to invest in real property and it would always be wise to invest some of your money in it. Either to have your own living space or to earn a profit, you should put some money into real properties.
Reasons can differ in buying land, apartments, houses or even buildings. Some buy to build a farm, drill for oil, dig for minerals, build a house, build a family or just buy and then sell for a profit. Land is a good investment as it is very tangible and no one can physically steal it from you. Most property markets are also stable and in most cases, values of such are on a steady rise from time immemorial. Whatever your reasons may be for buying such, it will always be to gain something out from it. Click this article to learn more about property investments.
There are times when buying personally becomes unprofitable for you. When your tax rate is high due to a high income from a specific source but then your income from your real estate investment is low then combined with your high tax right, you might as well not have any profit in your real estate investment because of the high tax rate.
A limited company like a corporation and allows the business to have limited liabilities and other tax options. Depending on the protection laws of the state where you are doing business, doing business as a limited company can protect you from debt made by the company. It also protects the owners from getting sued when the company gets sued and they can file for bankruptcy without damaging the credit and name of the owners. Click this website to learn more about limited companies: https://www.investopedia.com/terms/l/limited_company.asp.
When you use a limited company to invest in real estate, your taxes will be based on corporate law rather than personal taxes. Depending on your corporate law in your state or country, you will most likely have different brackets for different sizes of income. This means that your personal income or income from other sources will not affect the tax rate on the profits of your limited company.
Since limited companies can be owned by 2 people or you can even use a Limited Liability Company which can be owned by one person, you can have your company buy things that you can use personally like a car or a house. These will become assets of your company and you won’t have to pay dividend taxes on them. However, as you buy more things, the assets of your company will also get bigger which can change the tax rate of your LTD depending on how big your assets already are.
However, investing through a limited company is not yet the perfect solution. The first problem in a limited company is that there is a secondary tax when you withdraw money as dividends from your LTD. This is called dividend tax and this is after you have already paid corporate tax. This can cause your profits to get smaller but there are also ways to get around it.
Another problem that you will encounter in investing using the ltd is the amount of paperwork that needs to be done. Compared to buying properties personally, there is a lot more paperwork needed when using a limited company to buy and sell assets like land, houses, flats, and buildings. However, if the profits and gains are big enough, paper works will be worth it and they won’t be as much of a hassle anymore once you get used to them.
Lastly, Credit for limited companies is not yet as available as for personal and corporations. Personal credit is easier since most people have credit scores and corporations have an edge because of the economies of scales that are needed to create one. Eventually, however, credit companies will be able to find ways to make credit available for limited companies as this can be profitable for them too. Especially with the help of technology,
Investing is very serious and requires concrete answers. To be able to get more information and solutions to such problems, it would be wise to talk with an accountant or a business consultant who can give you all the right answers. Sometimes, research is not enough and it is better to ask experts.