One of the most important steps when taking the plunge into property investment is also one of the most overlooked parts of the process. Making sure your investment is set up in the correct structure from the beginning can ensure that serious, and expensive, ramifications are avoided down the track.
When it comes to structuring, whatever the investment is in property, property development or business, there is no cookie cutter solution to the problem. The different individual circumstances everyone faces play a huge factor in determining a fit-for-purpose structure for your investment.
The major driving factors that need to be considered from your personal circumstances are:
- Asset protection
- Unrelated parties
- Succession Planning
- Complexity & Cost
As one of the heaviest tax paying countries in the world, tax is always the first consideration when looking to undertake a new investment. And while taxation is a factor in driving your investment, it should not be the driving factor in your decisions. The most tax effective structure might also be the least secure in relation to the protection of your asset. It is important that tax savings are considered in partnership with asset risks, to avoid high costs on either front.
The potential risks and liabilities that exist in the modern world should never be underestimated, no matter how much we wish they could be. The more dealings and exposure you have to 3rd parties the more risk that should be considered when making decisions on your investment structure.
Using the correct investment structure and monitoring and actively managing these structures is imperative to minimising your risk exposure and protecting your other assets.
Structuring an investment takes a whole different avenue when dealing with unrelated parties as adding in multiple parties with different circumstances and investment goals can lead to different driving factors for each party. This can dictate a more complicated structure to allow the right level of flexibility for each party to the investment.
Having a clear exit plan when starting your investment journey is incredibly important to your structuring choices. Keeping in mind who you would like to inherit the property to can end up driving the structure of the investment depending on your wishes.
Using the right structure can also ensure that your investment can transfer to the nominated beneficiary without it becoming part of your estate, which can be a big factor when dealing with estates that may be contestable.
Costs & Complexity
The goals and outcomes that are set during the structuring phase of your investment drive the cost and complexity of your structure. Naturally, the more entities that are involved, the higher the cost of entry into the structure. These structures are set up for their purpose and in the long run usually pay for themselves in spades if they fit with the long term goals and objectives of your investment.
What are my options?
Below are common structures used for property investment and a summary of their attributes, depending on your personal circumstances there may be more than one structure required to meet your objectives.
Structuring yourself correctly in the infancy stages of your investment journey can save you costs and heart ache in the future. With property, once you are in a structure it is incredibly difficult to change your structure without incurring a second round of transfer duty and associated costs.
Planning early will ensure that asset protection is strategic, tax planning is optimal, and the right succession planning is in place from the beginning
HOW CAN RSM HELP?
If you have any questions regarding property investments, get in touch with your local RSM advisor.