In commercial real estate investing, one very important aspect that must be taken into consideration at all times is the issue of co-ownership charges. Essentially, this means that when an investor or property buyer purchases a commercial property, they assume the risk of being held responsible for the ongoing maintenance costs of the property. As a result of this responsibility, all costs are incurred by the buyer and not by the investor / property owner. When these costs start to add up over time, it can become very expensive, and this is why it is so important for investors and property buyers to find ways of reducing their share of these ongoing maintenance costs.
The basic responsibilities imposed upon a buyer of a commercial property held in co-ownership by other investors is to cover a fraction of all the co-ownership charges levied by the company who owns the property (i.e. the developer). The criteria applied to calculating the fraction of all co-ownership charges by an investor are laid out in public policy provisions laid down by the government.
It may seem at first glance that the only way of reducing the amount of ongoing co-ownership charges you are required to pay each month is by simply paying the entire amount upfront. However, it must be said that there are significant tax benefits associated with making a direct down payment on your commercial property. You are effectively putting yourself in ‘first’ line of credit – so to speak, and the tax office see this as an investment in your future wealth. By paying off a portion of your monthly payment at the outset, you ensure that a considerable amount of your income is now coming directly from the dividends.
One benefit that offsets many of the drawbacks associated with upfront payments when buying a commercial property is that the property manager may be able to negotiate lower rates of commission on your behalf. There are also circumstances where the company that you are buying the property from will offer to take care of all or some of your joint-venture and co-ownership fees. In these situations, they may be willing to reduce your overall rate of commission. This could translate into substantial savings over the term of your ownership of the property. In addition, you will be able to save on ongoing maintenance and other charges that you would normally have to pay. In essence, you are making the best of one of these agreements – so why not take full advantage?
The biggest disadvantage to paying off your own share of the costs associated with a rental property is the amount of money that you will be racking up in excess tax liability. You may be a rental income business owner who has no other investment opportunities but your own apartment building. You may have a very high income, but you also own your building, and therefore you have liability for everything that happens in your property. If you have a rental income business, you may be paying thousands of dollars in excess tax liability each year. Even if you do not have rental income as an active business, you still have liability for all the building’s financial obligations. If you agree to joint-venture with other investors or to invest with other French companies, you may be required to pay more tax than you would have otherwise paid.
By themselves, both of these options mean a lot of extra tax liability that you are effectively putting yourself into. By paying off your own share of the expenses, you will not be increasing the amount of tax that you are liable for. By contrast, by investing in France properties, you can increase the amount of tax that you are responsible for by sharing the responsibility for common areas and security systems, as well as certain utilities. Some private areas can be very expensive to maintain on your own. By investing in France private areas, you can reduce the cost of maintaining those areas and increase your own profit. If you choose to use another investment strategy, such as a venture capital firm, the profits that you make will go largely to paying off your other joint-venture partners, leaving you with more capital for investments in French properties.
If you choose to use a venture capital firm to fund your venture investment, you will still be responsible for the same amount of taxes as you would if you had invested in France properties yourself, but the difference is that the other investors will receive their capital in one year, instead of in two. The fees for this type of funding are usually much less than the fees you would pay to have a French property co-owned for one year, so it may make more sense to have the other assets held for one year and the funds paid out in the second year, providing that the other investments to pay out in full each year. By choosing to invest in French real estate and paying the one-year fee only once, you can avoid having to pay interest on the joint-venture’s capital, and that alone can help offset some of your France co-ownership fees. As long as you can demonstrate to potential investors that you are able to successfully manage the properties and pay your joint-venture partner’s fees on time each year, they will likely be willing to finance your venture.
Private properties are a great way to invest in France, as long as you know how to manage them and minimize your France co-ownership charges. A good real estate investment strategy should include an insurance policy that protects the property against any damage caused by you as well as your tenants. You should also have a common law estate plan, which will ensure that your property is protected in the event that someone gets injured while using your facility or walking across your property. It is a good idea to discuss all of your options with a lawyer before you start buying any properties in France and keep in mind that there is a limit on how high a percentage you can claim back in property damages from customers. If you do decide to have joint ownership of a French property, make sure to document everything and keep accurate records.
