Many investors want to build or boost their wealth by investing in properties. This is especially popular among Australian investors due to favourable taxation schemes, low interest rates, and population growth. While the market isn’t going on an upward trend, it remains positively or neutrally geared.
If you want to explore this avenue for wealth generation, you should be ready to set up safety measures to protect your property assets. Like any investment vehicle, real estate is also vulnerable to inflation, market crashes, and fluctuations.
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1. Choose an asset ownership structure that’s right for you.
In property investment, you will have to choose a specific ownership structure that will impact taxation, liability, and plans for succession. Your options include individual or sole ownership, joint ownership, trusts, companies, and joint ventures. What you choose will depend on your goals, intentions, and the risks you’re willing to take.
Sole ownership, for example, means you’re solely responsible for the debts and liabilities of an asset. A property held by a company, on the other hand, involves limited personal liability. The complexity of the regulatory requirements, however, might make you think otherwise.
2. Make sure the property is insured.
Protect your property against unforeseen events with adequate insurance coverage. Investment property insurance will safeguard your investment against damage from certain events like fire or vandalism. Landlord insurance, on the other hand, is recommended if you’re renting out properties.
This will cover risks such as loss of rental income during vacancies or tenant damage. If you want to avoid any legal disputes that arise from a defective property title, title insurance is your best safeguard against it.
3. Set up legal structures.
Establishing a family trust is one of the best examples of a legal structure that can help you protect your investment assets. As already mentioned, it can provide you with tax benefits and protection. It also keeps income distribution flexible.
4. Manage debts wisely.
Property-related debts can lead to major losses if not minimised. It should be managed properly, and any financial risks should be avoided as much as possible. Your debt-to-income and asset value ratio should be manageable. Otherwise, your investment will be vulnerable to changes in interest rates and market fluctuations.
5. Set up binding financial agreements.
Think of a Binding Financial Agreement (BFA) as the prenuptial agreement that will protect you in case your marriage or de facto relationship fails. With the BFA in place, you can outline how your assets and finances will be divided, ensuring that the other party won’t swipe everything you’ve ever invested in and worked hard for.
6. Seek legal advice.
Even before you venture into real estate investment, speak to a legal professional and get an in-depth view of what you’re getting into. They can tell you what mistakes to avoid when buying a condo overseas, for example. Depending on the type of property you want to invest in, they can also provide tailored advice and strategies for success.
Property investing requires preventative measures that guarantee long-term profit and success. With a better understanding of the factors that matter, from ownership structures to legal requirements, you can build wealth and avoid financial and investment risks. Ready to set up safety measures for your property? Book a consultation or get a quote from Property Insurance Plus (PIP), your authorised provider of general insurance products.
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