The real estate business is rapidly booming, and almost everyone wants to own a property, even businesses. It is common to see businesses buy or own commercial and industrial properties.
But is it possible for a business to buy a residential property?
In this article, we will answer the question and show you what to consider if your business wants to enter the residential real estate market.
We will also show you all you need to know about a business buying a residential property and how to use a property management system to manage one.
Primary Considerations to Make When a Business Buys a Residential Property
A residential property is designed explicitly for living purposes, not commercial or industrial. It is often situated in a residential environment; hence, many considerations go into place when a business wants to buy a residential property.
Yes, a business can buy a property, but for what purpose?
There are essential factors to consider for your business to buy a residential property— for example, the legal considerations and finances . Let’s take a look at them.
Various legal factors guide the purchase of properties, and these factors vary from one zoning area to another.
However, the most common factors among them are the types of businesses permitted to buy a residential property and the regulations guiding the purchase.
1. Types of Businesses That Can Purchase Residential Property
Although businesses can acquire residential real estate in many jurisdictions, not all companies can do so. The permissibility can vary depending on the nature of the business and local regulations.
Corporate housing providers, real estate investment companies, and bed-and-breakfast or hospitality businesses are among the businesses that can own a residential property. There are various reasons why a business will want to own a residential property, and we will see them later in this article.
2. Regulations and Restrictions
Buying a house or other residential properties involves many regulations and restrictions, varying from one zonal area to another.
These regulations and restrictions include zoning laws, building codes, and community rules.
Understanding these constraints is very important before your business proceeds with any purchase to avoid legal consequences in the future.
If your business wants to buy a residential property for commercial purposes, some areas have restrictions on how to use the property. For example, there can be restrictions on the number of occupants or the type of activities that can be conducted on the premises.
Carefully consider these restrictions and regulations before buying a residential property in an area.
Your business’ finances also matter a lot. When buying a residential property, you must consider how your business will finance the purchase and how the tax implications will affect your finances.
1. Commercial Loans or Residential Mortgages
Buying a property, especially a residential one, is not easy regarding finances. It is expensive, and your business needs to consider financing before making the big move.
Some businesses prefer to use commercial loans. Commercial loans are specifically for businesses looking to purchase properties. Unlike residential mortgages, there are often different terms and conditions attached to the loans.
Residential mortgages are designed for individuals or families wishing to buy a house.
Most businesses prefer commercial loans because they offer greater flexibility in terms of property use. However, the loans also attract higher interest rates.
2. Tax Implications
There is also the tax aspect. The tax implications depend on your business structure, location, and the property's intended use.
Some of the tax implications include:
- Property taxes: Businesses may be subject to different property tax rates than individual homeowners. Hence, you should consider how property taxes will affect your operational costs.
- Income taxes: If you plan to generate rental income from the residential property, the income will most likely be subject to taxation.
- Depreciation taxes: In some cases, businesses can benefit from tax deductions related to property depreciation. However, you must consult a financial expert specializing in real estate investments and taxation to understand financial considerations better.
What to Know When Buying a Residential Property as a Business
Once you have decided to buy a residential property as a business, there are important things you must know:
1. Property Inspection
Before you finalize any property purchase, conduct a thorough inspection of the property to prevent unnecessary issues over time. This involves hiring a qualified inspector to assess the property’s condition.
The property inspector will check the property’s foundation, roof, plumbing, and electrical systems to ensure they are in good condition.
Furthermore, confirm that the property adheres to safety codes and standards like fire and electrical safety measures.
Lastly, in the property inspection, check for any environmental hazards like molds or asbestos near the property. This particular inspection is essential for the well-being of the occupants.
2. Property Management
Managing a residential property is difficult, especially as a business. You will need a property manager to oversee the property and its activities.
The property manager will relate with the tenants, addressing their concerns promptly and ensuring a safe and comfortable living environment. They will also handle property maintenance handling all property repairs.
In some cases, the property manager will help the business to handle rent control, eviction procedures, compliance with health and safety codes, etc. You can check out our article on property management guide for more information on property management.
3. Taxation and Accounting
One advantage of owning a residential property as a business is the potential for depreciation deductions. Depreciation allows you to deduct a portion of the property’s value over time, thus reducing your taxable income.
Aside from depreciation, you can enjoy other tax deductions like mortgage interest deductions, operating expenses, and home office deductions.
Operating expenses are expenses spent on property maintenance and repairs, while home office deductions are made on houses used partially for business activities.
Reasons Why Businesses Buy Residential Properties
There are various reasons why businesses want to venture into the residential real estate market.
1. Employee Housing
Some businesses policies require them to provide housing opportunities for their staff, especially foreign ones. It is a great strategy to recruit and retain talent.
For example, companies that offer housing opportunities stand out in the job market and often receive high applications from valuable job seekers.
But that is not all.
Employees with access to company-provided housing are more likely to commit to long-term employment.
As a business, you can benefit, too, because you will have high employee retention and low turnover rates. Happy employees are more productive and engaged.
2. Encouraging Work-Life Balance
Most businesses encourage their staff to have a steady work-life balance. They do this by providing comfortable and affordable housing options for their employees.
Employee housing provides convenience by eliminating the stress of finding suitable accommodation in a new location. This convenience can ease the transition for employees relocating for work.
3. Community Building
Companies often buy residential properties for their staff to promote communal living. These companies purchase estates, apartment buildings, townhouses, and even condos.
If your company’s core values are community or you promote employee bond and togetherness, you may consider buying a residential property for your employees. It is an excellent way for employees to stay in touch, live nearby, and encourage collaboration.
4. Real Estate Investment
Residential rental properties are very profitable. If a business is not buying residential properties for their employees’ accommodation, they are probably buying to diversify their business assets.
You can diversify your asset portfolios beyond traditional investments like stocks and bonds. Real estate offers long-term value appreciation and income generation, thus increasing your company’s net worth.
Additionally, businesses can earn extra revenue from rental income and other fees from tenants. This helps stabilize your business’s financial position.
5. Temporary Office Space
One compelling reason businesses acquire residential properties is the unparalleled flexibility in choosing office locations.
Traditional office spaces often come with fixed locations and lease terms, limiting a business's ability to adapt to changing circumstances.
For example, the rise of remote work has made location flexibility more crucial than ever.
How Property Management Software Can Help
If your business owns a residential property, you need property management software to manage it properly. A PMS is a game-changer in effectively managing properties.
As an invaluable tool for property management, a PMS enhances efficiency, organization, and compliance in various aspects of property management.
You can easily handle operations like rent collection and invoicing, tenant maintenance requests, and financial reporting.
Using a PMS helps your business maintain the residential property and generate more income.
Use Booking Ninjas As Your Residential Property Management System
It's one thing to own a residential property as a business and another thing to manage it. Even if you use property management agency services, you still need a PMS like Booking Ninjas to keep you updated on your property's activities.
Booking Ninjas helps you manage your rent rate, calculate income and expenses, manage maintenance requests, and monitor the overall performance of your property.
With our PMS, you get an all-in-one property management solution with extra unique features for your residential rental property. You can visit our website or contact us on WhatsApp to learn how to get more value for your property.