Did you find yourself wanting to start your investment portfolio? Then you might have asked yourself
“How Do I Structure My Investment Property Ownership?”
When I help clients with their investment loans, how the investment is owned is one of the most important aspects for the investor. It’s right up there with getting the right mortgage for the property – it actually affects what finance is available for the property in some cases.
There are structures that are harder to get good finance for – which may take a solid investment property and turn it into a marginal performer. The right structure and a good investment property with a good mortgage could be a sure-fire winner.
If you are looking to invest in property, knowing how you will structure your investment is as important to understand before you make a purchase, that’s why it’s important to understand your options now and not make a decision at the last minute in order to secure the deal of a lifetime.
Here are the most common options:
Personal Name:
While there is no asset protection from doing this, there are also no setup costs and few compliance obligations. The main reason to hold an investment property in your personal name is to get access to negative gearing – effectively reducing your income.
Unit Trusts:
The main reason to use a unit trust is because of its rigidity. Ownership is clearly prescribed going in and can’t change and they offer strong asset protection. There are setup and compliance costs and you can’t gain an advantage from negative gearing property held this way. Finding a lender who will loan money for a unit trust to invest in property can be difficult.
Discretionary Trusts:
Lenders are much happier to lend to a discretionary trust than they are a unit trust. They also offer good asset protection and give you the flexibility to move income between members in a tax-advantageous way – changing as your circumstances change. Like unit trusts, there are setup and ongoing compliance costs and finally, you can’t gain any advantage from holding negatively geared properties in a discretionary trust.
Company:
The big advantage of holding property investments in a company has to do with the lower tax rates and the high degree of asset protection it offers. Holding investments in a company can be an effective way to help spread out holdings to minimise your land tax obligations. There are setup and ongoing compliance costs to consider as well. It does let you accumulate profits until a time when it’s tax effective to pay them out. Any tax paid by the company is passed on to shareholders in the form of franked dividends.
Self-managed Super Funds:
SMSFs are the final common option for a structure for investing in property. The big attraction for many investors is it offers diversification away from the share market – helping to stabilise your portfolio. SMSFs work best when you don’t intend to sell your investment and want the property to be part of your retirement portfolio. The rules are complex, you need a fair bit of super already and there are setup and compliance costs that you need to factor in.
That covers your main options for structuring your real estate investment. It is important to seek professional advice before you decide on which structure to use.
For more information or help with finance for your next investment property call 1300 661 211 or register online at https://mortgageworldaustralia.com.au/contact The team at Mortgage World Australia will work with you to review your situation and assess what your options are and assist you with getting your investment loan. If need be, we can direct you to professionals who can help make investing in property much easier.
