June 16th, 2014. Ben Lloyd
Buying as a Business vs. Buying as an Investor: What’s Best?
When it comes to buying a commercial property to house your business it can be a difficult decision to make as to whether you buy it yourself and rent to the company, or buy it as a business. You may think that either way you purchase the building you will get all the perks to owning it outright. While this is largely true, there are pros and cons to each way of buying it. Here we will explain the advantages to owning your own premises and the differences between buying as a business or an owner.
Why Buy the Business Premises?
Buying a business property is extremely beneficial, as it allows you to easily add equity to your company and can save a small fortune in the price of property rental. In addition to this, once you’ve bought the property you have much more freedom to use it and alter it in any way you like – provided all the planning permission is correct. When you do eventually outgrow your existing premises, if you own it you can either decide to lease it in order to gain extra income or sell it in order to generate extra capital. There’s no need to worry about rental contracts either, if you’ve outgrown the building you can up and move as there is no fixed-term contract.
Buying as Business vs. Investor
Buying as a company can be beneficial, but not all companies will be able to make this kind of large purchase. The majority of lenders will require at least three years’ worth of accounts before they will even think about lending your business the money it needs to buy the property. Here are several pros and cons that you will have to weigh up when making the decision as to which is the best way to purchase a property:
• Investors charged higher rates and therefore need to have a larger deposit
As an investor you are seen as a greater risk by lenders, this is because you aren’t personally invested in the property. Because of this, investors generally receive higher rates than businesses and will require a larger initial deposit in order to secure the mortgage.
• If buying as business you don’t need to worry about rent
What you may not know is that if you buy as an investor on behalf of a business, you’ll need to charge the business rent. This may not sound like a big deal, but you will also be required to pay stamp duty on the lease, which can run up into the thousands. If you buy the property as the business then there is no need to worry about setting up rental, you simply pay the mortgage out of the business account.
• Can be hard for investors to get money out of business in order to make purchase
If the investor, or business owner, needs £100,000 in order to secure a deposit, but the cash is tied up in the company then it can be extremely difficult to release these funds. If you plan to make a large withdrawal then you should expect to pay tax on this amount. Unless the investor already has the cash needed for the deposit, it can be much easier for a business with the funds to make this purchase.
• Investors can make a profit off rent
A major benefit to buying as an investor is that you can charge more rent than the cost of the mortgage. For example, if the mortgage costs £600 a month as an investor you could charge £1000 a month and bring in a profit of £400 a month. This is not something that can be done when buying as a company.
• Issues with company or investor going bankrupt
Going bankrupt is something you should always consider when buying property. If a business goes bust then the building they are housed in will be sold off in order to help cover their debts. On the other hand, if an investor becomes bankrupt, then the building will be sold to another interested party and the business will likely continue to lease the premises.
• Investors can get portfolio loans
Unless the business buying the property deals in property acquisition, they are unlikely to be able to get a specialist portfolio loan. These give much better rates on mortgages and allow you to group several properties together under one loan and typically giving much better rates than individual mortgage. Property investors should easily be able to get a portfolio loan and group their latest acquisition in with their other investments.
• Lenders look into all of an investor’s situations
When it comes to applying for a loan, the lenders will look at both an investor’s personal situation and the business’s accounts. This means that more information needs to be provided and everything needs to look good in order for the lender to agree to the mortgage. When a business is applying for the loan, only the business information is looked at making it much easier to get accepted.
• Business can claim VAT back
If your business has been exonerated of VAT then you can claim it back on all the costs involved with buying the property. This VAT exemption includes everything from the solicitor’s fees to searches, and even the lease which can make the whole process much cheaper. This is also possible to do if you have personally gained VAT exemption status as an investor, although this can be a more complicated process in these situations.
Doing What’s Right For You
It is important to remember that every situation is different. Although reading articles like this can help to clear up some confusion by showing you the key differences between buying as an investor or as a business, talking to a person is always the best idea. If you want impartial, professional advice on getting a commercial mortgage, then talk to us today on 02920 766 565 or email us on firstname.lastname@example.org and we’ll get back to you as soon as possible.
Article By Ben Lloyd
June 16th, 2014
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben