In planning and running my own business, I’ve always tried to think of a lot of different ways to be creative and safe with my money. I came across a really interesting idea as I thought about the best ways to go about getting my business’s first office space. That idea being to purchase my commercial property personally, and not with my business.
In reading about starting, growing and expanding a business, there are all kinds of reading materials in print and on the web. And when they address the top of acquiring office space, many of them point toward taking out relatively long leases or purchasing properties with the company’s money.
However, even assuming you have the money to do those things, I do not think they are the best routes to take. The problem with taking out a lease is that you don’t see any of that money. That is a complete loss every time you add it up. And as a business person, you certainly are not about taking losses.
And then when you have your business entity purchase your place of business, the mortgage payments are not deductible. Thus, you end up paying taxes on money you don’t have. Once again, that is something no business owner wants to do.
So what’s my proposal? Well, I’m not suggesting by any means that I am some type of financing genius, or that I am the first person to come up with this solution. But I have researched the topic a lot, and there is very little mention of my answer to this problem, especially in mainstream publications.
The answer for a business owner in acquiring their first or new office space, as I said before, is to buy it personally. This allows the business owner to then lease the property to their business. In turn, the business plays business owner rent, and rent is deductible from one’s taxes.
I really do not see how this solution can be trumped. Obviously, if you are a mega corporation, a business owner being the owner of the property would be an issue of compliance for the other major contributors to the company. But if you are the sole owner, there are no legal issues that can be brought to your attention in renting out a property to your business, so long as you offer a “fair and reasonable” monthly renting fee. And yes, you can make a profit off of your business.
My number one suggestion is that you form a separate entity, preferably a Limited Liability Company (LLC), have a 100% stake in the company, and purchase the house with that. That way, your rental to your company can in no way be misconstrued as anything other than a legitimate business transaction, and making a profit can certainly be considered business. Because anytime you do business with real estate, you always want that extra shield of protection, even if your customer is yourself. And make sure to classify your LLC with an S-corporation tax status, so that you don’t get double taxed.