Investing in property can be a big step, and highly rewarding.
But it’s not just a matter of purchasing property and seeing what happens. In order to get the most benefits from your investment, you first need to make sure you purchase the property within the right business structure.
Looking to invest in property? Not so fast. Contact Liston Newton Advisory to speak to one of our financial advisers and determine the best structure for your property investment.
Common property investment structures
You might instinctively decide to use a company structure for property investment. But depending on the situation, it may not always be the best structure for your property investment.
These are the six most common property investment structures that people choose:
- In your personal name
- Jointly with another individual
- Within a discretionary family trust
- Within a unit trust
- Within a company
- As part of a self managed super fund
We'll look at the pros and cons of each one, so you can determine which is the best structure for your property investment.
Using your personal name for your property investment
Pros and cons
Who this is most suitable for
This structure is most suited to first-time property investors who are keen to take advantage of negative gearing, and have minimal risks linked to them.
Investing jointly with another person
Pros and cons
Who this is most suitable for
Much like investing in your individual name, this structure is most suited to first-time property investors keen to take advantage of negative gearing, with minimal risks linked to them.
Things to keep in mind
When investing in property with another person, the issue of Joint Tenants vs Tenants in Common is an important distinction to be aware of, and should be addressed prior to signing your papers.
Joint Tenants
This situation refers to ownership where each party has an interest in the property. An important aspect of this is the Right of Ownership, a term meaning that should one partner die, the ownership is transferred automatically to the other partner.
Tenants in Common
This refers to the situation where each party is a co-owner, but there is no Right of Ownership. Should one partner die, their share goes to their estate instead, not the other owner.
Investing in property within a discretionary family trust
A discretionary family trust is a common type of trust structure used for holding assets. The trustee holds the assets for the benefit of its beneficiaries, distributing them at a percentage of the full amount to each beneficiary. Essentially, at their discretion.
Pros and cons
Who this is most suitable for
Investing in property under a discretionary family trust may be suitable for high income earners, who have access to individuals on a lower tax bracket. For example, this could be adult children, or retired parents. This allows profits to be distributed in a more tax-effective manner.
The limited liability of a discretionary trust also makes it a good option for individuals who have risk attached to their name. The beneficiaries’ assets will be protected if the individual gets into financial or legal trouble.
Investing in property within a unit trust
A unit trust is a trust structure where the beneficiaries have a fixed interest in the assets of the trust. The assets held by the trust are kept within the trust for the benefit of the unitholders.
Pros and cons
Who this is most suitable for
A unit trust structure can be beneficial for unrelated individuals looking at owning an investment property together. This allows them to each have a fixed interest in the property, so they know exactly what each party will receive.
Similar to a discretionary trust, a unit trust protects the assets of the individuals, meaning it’s a good option for those with risk attached to their name.
Using a company structure for property investment
Pros and cons
Who this is most suitable for
Using a company structure for property investment is ideal for high-income individuals who want to minimise the tax they pay. It’s also a good option if the idea of losing the 50% CGT discount doesn’t particularly concern you.
Investing in property in a self managed super fund
Pros and cons
Who this is most suitable for
Investing property within a SMSF can be beneficial for those looking to save for retirement, don’t have any immediate need to access the income, and have no intention of selling.
The final word
So what’s the best structure for property investment?
At the end of the day, there’s no one best structure for your property investment. It all depends on your needs and goals.
It’s more a case of which structure is the most appropriate for your property investment.
Luckily, your financial adviser can help you work this one out, and ensure you receive the most appropriate advice for your investment future.
