Living in a property your business owns
You can do it – but the financial costs may be steep.
Martin Woomer, Silverdale, Wash.
I am thinking of buying a rental property that I may live in for a while. How do I transfer the title from my person to my business (I'm a sole proprietor)? Or is it better for my business to buy it, then have me rent it? Any suggestions? Thanks.
By Shara Rutberg, Fortune Small Business Contributor
Dear Martin: Regardless of whether your business is a sole proprietorship or an incorporated business, the process of having the business buy real estate for rental and then renting it to the owner is not a simple one, according to financial strategist Sean Monohan of Certified Financial Strategies in Dallas.
How you buy depends on a variety of issues, including: What type of property is being purchased? Will the property produce taxable income or tax losses? How long will the property be owned? What is the expected appreciation value? What type of business does the owner have, and how profitable is it?
There are also tax considerations, adds Scott B. Osborne, an attorney with Kirkpatrick & Lockhart Preston Gates Ellis LLP in Seattle. In particular, the capital-gain tax exclusion for personal residences could make individual ownership of the home more advisable.
Owner-occupants benefit from other advantages. As an owner-occupant, you’re more likely to qualify for the lowest mortgage rate available, according to financial advisor Terry J. Siman, president of Vantage Pont Advisors Inc. in Blue Bell, Penn.
“If you begin by considering it an investment property and don’t use it as a residence, the rates to borrow, for commercial purposes, are likely to be higher,” he says. As an owner-occupant your bank costs will be lower – not only your mortgage rates, but also your insurance costs. "Insurance companies assume an occupant who is the owner will take better care of the place," Siman says.
While deciding how to make your acquisition may be complex, “actually transferring the title to another legal entity is not really an issue,” says Monohan. “It generally requires paperwork at the local county clerk’s office, and the receiving corporation makes the appropriate changes in the company records related to capital contributions and percentage of ownership for impacted shareholders of the corporation.”
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