With drawbacks such as Higher Taxes, Unlimited Personal Liability and Limited Asset Protection, luxury buyers have increased their purchase of property through LLCs because of the privacy, asset protection and tax benefits it provides.
The article you’re about to read gives you access to the Reasons You Should Purchase Your Next Property Through A Company.
This article will provide the following information:
•What’s an LLC is
•Demerits of owning property as an individual
•Benefits of owning property under an LLC
•Demerits of owning property under an LLC
•Our conclusion
With this outline in mind, let’s proceed…
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What’s An LLC?
An LLC (Limited Liability Company) is a legal structure that combines the liability protection of a corporation with the tax benefits and operational flexibility of a partnership (which is owned by two or more people) or sole proprietorship (which is owned by one person). It is a type of business entity that is created by filing articles of organization in the country where the LLC will operate.
Under law it is recognized as a ‘person’ which means it can sue and be sued and most importantly own property. The owners of an LLC are called members, and they are not personally liable for the company’s debts and liabilities. This means that if the LLC is sued or faces financial troubles, the members’ personal assets are generally protected. An LLC can continue to exist even if a member leaves the company or dies, as ownership can be easily transferred or sold.
Downsides to owning property as an individual
There are several disadvantages of owning property as an individual, not excluding:
Unlimited Personal Liability: When owning property as an individual, there is no legal separation between the owner and the property, which means that the owner is personally liable for any debts, damages, or legal claims related to the property. This can put the owner’s personal assets at risk in the event of a lawsuit or other financial difficulties.
Limited Financing Options: Financing options may be limited for individuals who want to purchase property, as lenders may be more willing to work with established business entities or individuals with stronger credit profiles.
Higher Taxes: Owning property as an individual can result in higher tax liabilities, as individuals may be subject to higher personal income tax rates, capital gains taxes, and other taxes related to property ownership.
Limited Asset Protection: If an individual owns multiple properties or has significant personal assets, owning property as an individual may not provide adequate asset protection. This is because creditors or litigants can potentially go after all of an individual’s personal assets, including their property, in the event of a legal claim or bankruptcy.
Estate Planning Considerations: When an individual passes away, their property and assets will be subject to probate, which can be a time-consuming and costly process. Additionally, without proper estate planning, heirs may face significant tax liabilities or other complications related to inheriting property.
Benefits of owning property through an LLC
HNIs may choose to purchase property through a company for varying reasons not excluding:
Anonymity: By purchasing a property under a company, the buyer can maintain their anonymity and avoid disclosing their personal information, which can be important for high-profile individuals or those who value their privacy.
Asset Protection: Placing the property under a company can provide a layer of protection against personal liability, which can be useful for individuals with high net worth or in certain professions where there is a higher risk of being sued.
Tax Benefits: Purchasing a property under a company may also provide tax benefits, such as deductions for expenses related to the property, which can be useful for individuals seeking to minimize their tax liabilities.
Estate Planning: Placing the property under a company can also simplify estate planning, as ownership shares in the company can be easily transferred to heirs or other beneficiaries.
While there are several benefits to purchasing a property through an LLC, there are also several disadvantages such as:
Higher Costs: Purchasing a property under a company can be more expensive due to the added administrative and legal costs associated with setting up and maintaining the company structure. This can include fees for incorporating the company, registering it with the relevant authorities, and ongoing accounting and legal fees.
Financing and Insurance: Lenders and insurance companies may view the purchase of a property under a company differently than a personal purchase, and may require additional documentation or impose stricter requirements. This can make it more difficult or expensive to secure financing and insurance for the property.
Tax Implications: While there may be tax benefits to purchasing a property under a company, there can also be drawbacks, such as potential double taxation if the company earns income from renting the property. It’s important to consult with a tax professional to fully understand the tax implications of purchasing a property under a company.
Lack of Control: By purchasing a property under a company, the buyer may relinquish some control over the property. This can be particularly true if the company has multiple shareholders or is subject to other legal agreements that restrict the buyer’s ability to make decisions about the property.
Our conclusion
It’s important for luxury buyers to carefully weigh the potential benefits and drawbacks of purchasing a property under a company as each unique situation requires a unique approach before making a decision.
Moses Oyong is a luxury real estate advisor with a passion for arts and culture, music, fashion, and all things luxurious. With a keen eye for beauty and attention to detail. I strive to help my clients find their dream homes that reflect their unique sense of style and taste whilst providing them with the right information to ease the stress of the decision-making process.
