Companies and individuals have used the SPV (Special Purpose Vehicle) route for decades for various purposes. It has become prevalent for HNIs (high net worth individuals) to use an SPV to buy investment properties. BTL (buy to let) became less popular in the real estate space, after the increase in stamp duty on the second property and disallowance of interest in mortgage or loan as a cost.
Several firms specialize in an affordable SPV setup that helps you create the entity to begin your new venture in no time. There are a few vital points to be aware of before you start. Ask your SPV service provider the following questions.
What Does It Cost To Create An SPV?
The answer to this question will vary from state to state. For example, the cost of creating an SPV in New York is lower as the state does not charge for Blue Sky filing. Other states like California charge $25.00 to $300.00 depending on the worth of securities sold.
Apart from the Blue Sky filing charges, there will be a fee that the SPV creation team will charge you. It will be a fixed amount that you negotiated with them at the beginning of the assignment.
What If The SPV Is Unable To Attract Investors?
The purpose of SPVs is to attract investors to invest in a particular project. If you have the SPV in motion but cannot attract enough investment to get the project in the air, you can discuss it with your SPV service provider to dissolve your campaign. They will be charging a fee for the dissolution process.
What Is Blue Sky Filing And Who Takes Care Of It?
While the SEC regulates the country's securities market, each state has specific laws governing the securities sale there. These are called Blue Sky Laws and are designed to protect the investors. The filing also varies from state to state, and the SPV fund manager will handle it. Depending on the filing frequency, you may be charged a monthly, quarterly, or annual fee. With an affordable SPV set up, you can expect to have the lowest price possible for such filings.
What Are The Limitations Of An SPV?
One limitation of an SPV is that crowdfunding in the SPV is capped at only 99 investors per entity. This limit was set by the SEC and may result in lower capital accumulation that required. It means that you will have to cover the remaining investment yourself or dissolve the entity.
Can I Get A Loan Through The SPV?
Yes, you can get a loan or mortgage in the name of the SPV. Since the SPV was created for a specific purpose, you can get a loan for that purpose. For example, if you set up an SPV to buy a second property, you can take a mortgage in the SPV’s name. Any income from the property (sale or rental) will be extracted from the SPV in the form of salaries and not taxed.
Conclusion
SPVs have been around for over three decades and are a sound way of financing and keeping risk remote. An affordable SPV setup will help in low in terms of administrative costs and compliance of regulatory filings. A special purpose vehicle could be the smartest option out there for your needs!
