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Choosing the right ownership is a crucial step when deciding to purchase a property. Whether you buy a property in your company name, trust, or personal name, the ownership structure will have an impact on tax, financial, and legal consequences.. Most first-time investors don’t consider this aspect in depth and face the consequences at a later stage. Deciding about property ownership is a challenging task because of unknown clauses and hidden issues. Whether you are an experienced investor or a first-time investor in the real estate industry, this blog may help you decide right about the ownership structure for the property you want to buy.
What are the Key Aspects You Should Consider Before Deciding About Ownership
The decision about property ownership affects your financial outcomes. Whether you buy property in a personal name, trust, or company, each approach has advantages and disadvantages. So, before delving into the different types of property ownership in Australia, you need to consider the following four key aspects before making your decision-
Asset Protection: Asset protection plan minimises your risk and maximizes the value of your asset portfolio. Asset protection strategy helps you shield your personal assets from being used to meet a creditor’s claim.
Tax Implications: You should consider an ownership structure favoring your income tax circumstances.
Cost & Complexity: Property purchase using a Self-Managed Superannuation Fund (SMSF) often becomes a complex exercise because you need to follow audit requirements and other regulations while purchasing a property in a personal name is simple and cost-effective.
Future Flexibility: How does the ownership structure adapt to a change in your circumstances? The ownership structure should provide you the flexibility to address possible changes in circumstances and plans in the future.
Based on the above consideration, you should decide the appropriate ownership structure for real estate investment.
What are the Most Used Ownership Structures for Real Estate Investment in Australia?
Individual Ownership Structure: Individual ownership or private ownership is the simplest ownership structure. Under this ownership structure, an individual purchases property in the personal name or jointly with another person. However, individual ownership comes with limited asset protection.
Trust Ownership Structure: Trust ownership structure is getting increasingly popular among property investors because it offers excellent asset protection and tax benefits. The most used trust ownership structure is a family trust; here, a family trust is used as a part of asset protection strategy. The property purchased under a trust ownership structure is held in the trustee’s name. There are two types of trust formation for real estate investment:
Unit Trusts – The listed beneficiaries hold a number of units, and the income is distributed according to a number of units each beneficiary holds.
Discretionary or Family Trusts – The trustee has the right to distribute the income and to get the maximum tax-benefit.
Company Ownership Structure: The properties purchasing under company ownership structure is a good choice if you fall in a high-income tax bracket because any rental or passive income from that property is taxed at the company tax rate i.e. 30%.
To help you further decide right about ownership structure like a pro, I am placing here a comparative view of all three popular ownership structures for real estate investment.
Comparative View of Property Ownership Structures to Help You Decide Like a Professional
Individual Ownership Structure | Company Ownership Structure | Trust Ownership Structure |
Pros | Pros | Pros |
Buying & managing property is simple | Provides asset protection as property is owned by the company | Generally protected from personal creditors |
Beneficial if the property generates high-income | Assets are passed on according to the trust deed | |
Allows to offset losses on the property to reduce taxable income | Separate legal entity helps to keep personal & business assets apart | Allows to reduce the tax burden by allocating extra income to beneficiaries in lower tax brackets |
Cons | Cons | Cons |
Property is at risk in case of legal action/ bankruptcy | ||
Death of owner may trigger Inheritance disputes | No negative gearing | Negative gearing is not beneficial because Losses can’t be distributed |
Lack of flexibility | Additional costs and compliances | Administratively complex and Costly |
Role of Buyer's Agent to Safeguard Your Real Estate Investment and Maximize Return
Should you consider hiring a buyers’ agent to help you professionally to safeguard your real estate investment and maximize return? Yes. Engaging a buyers’ agent makes a significant difference in managing complexities and ensuring maximum investment outcomes. As cited by an article published by The Ascent referencing Business Insider, up to 20% of buyers seek the help of buyer’s agents to get additional ROI benefits of their professional skills. Buyer's agents in Australia make the property purchasing process hassle-free, more efficient, and cost-effective for home buyers.
How does a buyers’ agent add value to your real estate investment?
Accessing exclusive opportunities
Enhancing market knowledge
Mitigating risks
Facilitating secure and seamless transactions
Maximizing financial returns
Unbiased assessment of properties
Professional skill and experience in negotiating favourable terms and prices
Making the process simple and faster following all the effective norms and regulation
Get in touch to property framework.
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