Buying Property as a Company or an Individual: What’s the Best Structure Option For You?

When it comes to buying property, one of the most important decisions you’ll make is choosing the right ownership structure. Whether you’re buying as an individual, company, in a joint venture, through a trust, or via a self-managed super fund (SMSF), each option has its own set of pros and cons that can significantly affect your financial and legal responsibilities.

Here’s a helpful guide on the pros and cons of each option.

Buying Property as an Individual

Buying as an individual (or with a partner or spouse) is typically the most common and straightforward way to purchase property. The process is simpler compared to buying through a company or trust, and it’s usually the cheapest option in terms of upfront costs.

Buying as an individual involves a simpler process than applying for a loan as a company. Individuals purchasing property for the first time may also be eligible for the first home owner grant. This grant offers a full or partial exemption on transfer duty, and varies depending on your location, however it should be noted it is mostly limited to those purchasing a home to live in, not investment properties. 

The main downside of buying as an individual is that you’re personally liable for the property and any debts associated with it. For example, if you can’t make your loan repayments and the property is sold, your creditors could come after your other assets, including your savings and your wage.

Buying Property in a Joint Venture

Buying property in a joint venture (JV) has many benefits, but it’s important to understand the risks involved before you take the plunge. A JV involves two or more parties pooling resources to purchase property. This is a popular option for those who want to invest in real estate but lack the capital to go it alone. JVs can be structured in many ways, but it’s crucial to have a well-drafted agreement to outline each party’s roles, responsibilities, and exit strategies to avoid disputes. Joint ventures also offer the opportunity to spread the risk involved in a real estate investment among multiple parties.

Of course, there are also some risks associated with joint ventures. One of the biggest is that disagreements among the parties can often lead to legal disputes. 

It’s important to have a clear understanding of each party’s roles and responsibilities before you enter into a joint venture agreement.

You should also be aware of the tax implications of your joint venture. Income, losses and capital gains need to be divided according to ownership shares, which may complicate tax reporting. It’s essential to understand how your share of the profits or losses will be taxed.

Buying Property as a Company

Buying property through a company is a smart approach if you’re looking to limit your legal and financial liability. 

When you buy property as a company, the company becomes the owner of the asset. This means that if the property is ever sold, any capital gains or losses will flow through to the company. This can be helpful in terms of limiting your personal financial liability if the property is ever sold at a loss.

However, when you buy through a company, you’re not eligible to receive the 50% capital gains tax (CGT) discount that is available to individuals. Additionally, if you haven’t already, you’ll need to set up a company to purchase the property, which can be a time-consuming and costly process.

Buying Property Through a Trust

A property trust is an arrangement where somebody (the trustee) holds the legal title to the property for the benefit of another person (the beneficiary). Trusts are popular for their asset protection and estate planning benefits, but they come with certain complexities.

Similar to buying as a company, the main advantage of buying a property through a trust is that it can protect the legal and financial liabilities of the parties involved. It can also make dividing of profits from the sale of the property much easier, which can be beneficial for family wealth planning.

Although a trust is eligible for the 50% CGT discount, it cannot claim the first home owner grant. Also, for negatively geared properties, the losses cannot be offset against the beneficiary’s other income.

Buying Property through a Self-Managed Super Fund

Purchasing property through a self-managed super fund (SMSF) has become increasingly popular in Australia over the last few years, particularly for those looking to diversify their retirement savings. 

The two biggest advantages of this option are that investors gain greater control over their investments and that SMSF’s provide significant tax benefits. You also have increased borrowing capacity, as you’re pooling from a larger source of assets.

The issue with super is that it is tied up in the property, and you can’t benefit from negative gearing. Establishing and maintaining an SMSF also involves legal, accounting, and auditing fees.

Finally, SMSF property purchases come with strict ATO rules, including limits on how the property can be used (for example, it can’t be lived in by you or your family).

So, What’s the Best Option for You?

The best option for you  depends on your individual circumstances. You’ll need to account for a number of factors, including your financial goals, your investment strategy, your tax situation, and your risk tolerance. Whether you’re an individual investor or looking for a more complex structure like a company or SMSF, it’s important to consider both the short- and long-term impacts of your decision. 

It’s also worth mentioning that you should always seek professional advice before making any final decisions on a property. 

Find the Right Option With Sharp Property Buyers

At Sharp Property Buyers, we can help you identify the right structure for your property purchase. We have a team of experienced professionals who can provide you with expert advice and assistance, tailored to your specific needs.

Contact us today to find out more information on how we can assist with purchasing a property on the Central Coast.

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Disclaimer: This information is intended for informational purposes only and should not be relied upon as a substitute for professional advice. Always conduct thorough research and seek expert counsel to ensure informed decision-making tailored to your individual circumstances. At Sharp Property Buyers, we strongly recommend consulting with qualified professionals to develop a strategy that best suits your financial goals.