How To Structure Your Investment Property Portfolio

Dilleen Property Group 2023

Property investing can be very rewarding when done right. This begins with structuring your portfolio in a way that is most financially beneficial to you. Many investors find this process quite confusing at first as there are so different ways to structure your portfolio.

Here are some advantages and disadvantages of each ownership structure to help your decision-making:

Individual Purchase

Individual purchase is the most common form of property ownership. It refers to one person buying and owning the property. This means that they are 100% liable for the debt. Individual ownership allows for tax deductions on loan interest, building depreciation and other property expenses. If your property is negatively geared you are eligible for tax benefits to counteract the losses. However, a disadvantage of owning properties in your personal name is that there is limited asset protection as you may risk losing your property if you run into any major legal or financial trouble.

Joint-name Purchasing

Joint name purchasing refers to buying a property under two or more individuals’ names. This ownership structure is quite common for couples, family members, friends and investing partners. An advantage of this ownership structure is that the property would be made more affordable as owners can use their combined borrowing power to purchase the property. Each co-owner can also financially contribute towards the deposit. However, if a co-owner were to purchase another property, the total owed amount of the current property would be allocated as their liability even if they technically only own half of the property’s debt. This will significantly reduce your borrowing capacity and your ability to invest in more properties.

Purchasing In A Trust

Family trusts and Unit trusts are the two common types of trust structures used by investors. Family trusts are often used by higher-income earners who have family members in a lower tax bracket such as retired parents or adult children. The trustee distributes a portion of the property’s profits to the beneficiaries for profits to be allocated more tax-effectively.

Unit trusts are commonly used between unrelated individuals who want to purchase an investment property together. This allows each person to receive a fixed interest in the trust, meaning everyone receives the same ownership of the property.

Using a trust provides the benefit of having limited liability which protects the beneficiary’s assets if the individual runs into financial or legal issues. However, there are also disadvantages that come with using trusts such as having difficulty obtaining finance due to banking policies, expensive setup and higher land tax. Furthermore, if your property happens to be negatively geared, the losses can’t be subtracted from your taxable income.

Purchasing Under A Business

Company structures are commonly used for business owners or high-income individuals who want to reduce their taxes. This is because profits can be accumulated in the business until a tax-effective time before paying them out. This also provides asset protection as the asset belongs to the company which wouldn’t count as personal liability. However, the LVRs for company structured ownership are quite high, standing at around 70%-80%, this means larger deposits will be required. Unlike other ownership structures, purchasing under a business structure makes you ineligible for the 50% Capital Gains Tax (CGT) discount. Finance may also be difficult to obtain depending on how long the business has been running.

Conclusion

There are so many different ways to structure your portfolio but it is generally most beneficial for beginner investors to start off with purchasing under their personal name. You should always gain advice from qualified professionals and speak to mortgage brokers that have experience working with clients with large portfolios. If you’re looking to obtain finance for your property portfolio, you can contact our recommended broker Justin Picker. Furthermore, if you’re looking to build your own property portfolio or need help with starting your property investing journey, feel free to contact us here to learn more about our services and investment strategy.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.