Last week we looked at what an SPV is and how it is not a specific type of entity but instead a vehicle that is used for a specific purpose to help you achieve your goals. We also considered that it could be a limited company, partnership, LLP or any other type of entity. This week, we are going to consider when we would use an SPV for property investing.
There are probably 101 different scenarios in which you would use an SPV for property investing, but as an example, you might decide to use an SPV when you are taking on a joint venture partner. How you structure this doesn’t really matter. It might be that you are putting in the time and your JV partner is putting in the money, but you would sit down and agree what you both want to get out of the partnership and the best way to structure the agreement to make sure that you both feel safe and protected within it.
This may be by setting up a limited company; or perhaps by setting up an LLP. Or, you might decide to set up a straightforward plain partnership agreement. These could all be SPVs for a JV as an SPV isn’t a particular type of entity, but the creation of an entity that best fits what you are trying to achieve.
You also might use an SPV to get around the changes to Section 24. Since this change, many property investors are buying properties into a limited company to enable them to offset all of the mortgage interest against rents when calculating corporation tax.
So, with this in mind, let’s think about finance for limited companies.
When you go to the bank and ask for finance, they are going to look at the SPV you are using. They are going to consider whether they want to lend to the SPV, and they will need to establish whether they want to lend to that particular type of entity.
There are a lot of lenders that will lend to a limited company, but it does raise the question that if you set up a JV using an LLP, will a bank lend to you?
The honest answer is that I don’t know. The bank will look at you and will look at your JV partner, and will consider how you have structured your LLP before coming to a decision. The same will apply if you decide to set up a limited company. Really, it’s not a matter of will they lend because it’s an SPV or because it’s a limited company – because what they look at is you and your JV partner, and they base their decision on that.
Many investors often ask me if they should set up a new SPV every time they buy a property. Once again, there are probably 101 answers but in my opinion, if you are buying properties in your name (and your name alone), and if – for example – you’re creating a buy to let portfolio and are planning to keep a lot of the properties, then you may as well keep them all in one entity. I don’t see any reason why you would want to split those properties between different entities. (Having said this, if you are reading this and are an accountant or mortgage broker, then you may have a different view, so please do share your thoughts with me in the comments below).
In my opinion, if you are accumulating properties you may as well just have the one entity if they are all going to be in your name – or maybe in the name of a life partner or significant other.
On the other hand, if you are thinking of doing multiple deals with multiple JV partners, then it would make sense to ring fence each of these deals. You might want to set up an SPV and put each property that you do with that JV partner into a particular SPV that has been created for that particular purpose. But again, this is a case of sitting down with your partner and deciding what is best for you both.
To help you decide, it would be a good idea to talk through things with an accountant, as different entities will have different tax implications – and as I’ve discussed many times over, it’s important to get this right from the start as any changes further down the line might not only be complicated, but also very costly.
Here’s to successful property investing.
Peter Jones B.Sc FRICS
Chartered Surveyor, author and property investor
By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to: www.ThePropertyTeacher.co.uk/the-successful-property-investors-strategy-workshop