Investing in real estate through a company: is it worth it?

An important question you may not immediately think about is whether you purchase the property as a private individual or through a company. We summarise the advantages and disadvantages of investing in real estate through a company.

Advantages of investing in real estate through a company

Tax-advantaged purchase. If you buy real estate through your company, you can deduct the related costs as professional expenses. Think of one-off costs such as notary fees, registration tax and VAT. That immediately benefits your bottom line.

You are not personally liable. Real estate also brings extra responsibility. Especially when you hold several properties in your portfolio, more risks come into play, such as a dispute with tenants or insurance issues. When you acquire the property through a company, that company is liable and not you. Your private assets are therefore shielded from potential problems when you invest in real estate through a company.

Deductible costs. The recurring costs you incur to manage your real estate can be deducted by the company. Think of property tax, broker or property-management fees, maintenance, repairs, depreciation and interest on financing. This reduces the corporate tax you have to pay.

A financial leverage effect. Withdrawing income from your company costs you money. If you don't distribute the profit but instead use it to invest in real estate, you create financial leverage and additional income.

In the long term. Do you want to transfer the real estate to your children? As a company you can transfer your shares to them relatively easily without paying registration duties, with or without a notarial deed. Do you want to take the real estate out of the company to gift it? Then you have to deal with capital gains tax (see below).

Disadvantages of investing in real estate through a company

There are also some drawbacks to investing in real estate as a company. Everything depends on the timeframe over which you want to invest and the size of your portfolio.

Disposing of your real estate is more expensive. If you want to sell your real estate again, it is more expensive from within your company than as a private individual. The reason? The capital gain on the sale — the difference between the sale value and the book value — is taxed. If you sell the company including the real estate it owns, you are much better off, as the realised capital gain on your shares is exempt from tax.

Rental income is taxed differently. In Belgium, rental income is taxed differently for private individuals and companies. If you rent out a home as a private individual to another individual, you pay tax based on the indexed cadastral income, increased by 40 %. As a company, you are taxed on the actual rental income at the corporate tax rate (25 %). The latter results in higher taxation. Are you renting out a property for professional use or to a company? Then it is more advantageous to do so as a company. If the tax authorities determine that your real-estate portfolio is of such a nature that it has a professional character, you will also fall into a higher tax regime.

Questions or need support?

Feel free to ask your further questions to property manager SEBAS, we are happy to help. welkom@mysebas.be

Source: Estero Rentmeesters