Stick to your structure
STRUCTURE is vital in real estate investment – and not just to hold up the roof.
How an investor structures their property ownership can result in hundreds of thousands of dollars of losses or gains over the life of an investment.
Metropole Wealth Advisory director Ken Raiss said property investors should start with the end in mind. “It’s using the legislation to your best advantage,” he said.
Mr Raiss said frequent mistakes were often repeated with structures, such as couples always putting both names on contracts.
“They think they can share the tax benefits but it means each person is responsible for 100 per cent of the loan but they’re only getting the benefit of half the property. It reduces the overall borrowing capacity of that family unit.
“Being in multiple names can cost you a lot more in relation to your land tax.”
Mr Raiss said some investors failed to structure and link debt with their property correctly, and unless the link was clear the ATO might disallow deductions.
He said holding too many properties in one entity could be costly.
Author, investor and university lecturer Peter Koulizos said investors should always seek professional advice about structuring.
He said a high-income earner would benefit from bigger tax deductions while a property was negatively geared, but would probably end up paying more capital gains tax when it was sold.
Sometimes a trust structure is a good option, sometimes it may be self-managed superannuation.
Bob Fioretti, 60, a semiretired former chef, has accumulated 12 regional properties in 12 years and used a combination of joint ownership, individual ownership and trusts.
“Land tax is a big issue – it’s a holding cost,” Mr Fioretti said of the issue.
How you structure your property ownership can be the difference between losing or gaining thousands