Property Investment Structures
Maximise Returns and Minimise Risk With Efficient Structuring
Real Estate Investment Structures
Investment Property Ownership Structure
The right property investment structures can protect your assets, maximise your returns, and set you up for long-term success. Choose the wrong one, and you could face unwanted risks and missed opportunities.
Your property structures affect everything from financial efficiency to legacy planning, compliance to portfolio flexibility. And, since every investor has different personal circumstances and goals, there’s no one-size-fits-all solution.
Property Portfolio Solutions (PPS) helps you navigate your options, weigh up the pros and cons, and build you a structure that meets your ultimate goal.
What Are Property Structures for Investment?
Basically, a property investment structure is industry-speak for describing who actually owns a property.
When you create a structure, you decide how the ownership is legally set up and what name is on the property’s title.
And that name might not be yours!
Instead, it might be a company, a trust, or even your superannuation fund. The choice you make has big implications for your taxes, asset protection, and how you distribute your wealth after your passing.
What Are the Types of Real Estate Fund Structures?
The best structure for investment property depends upon your portfolio size, property types, personal circumstances, and end goals. In Australia, there are typically five common types of investing structure:
Individual Ownership Property Structure
This is the simplest and most common way to own property — individual ownership just means the building is in your name. It’s the best structure for property investment if you don’t like complications and want to avoid set-up costs. You keep total control over how the property is used, financed, and managed.
Plus, there’s no difficult paperwork or yearly compliance demands — and you may make Capital Gains Tax savings (50 percent discount) if you hold the property for at least 12 months before selling it. The downside is that if something goes wrong, your assets — including family savings or even your home — could be at risk.
Joint Ownership Property Structure
Joint ownership means owning a property with one or more other people — there are two main types. Firstly joint tenants, where if one of the owners passes on, their share gets given to the surviving owner. Secondly, tenants in common — where if an owner dies, their share can go to a beneficiary stated in their Will.
The benefits of joint ownership include splitting the duties and expenses, and having few compliance duties and low set-up costs. Some of the downsides are arguments over property management and personal liability — both you and your owner’s individual wealth are at risk should problems arise.
Property Trust Ownership Structure
A discretionary trust structure for property investment is when a separate legal entity (the trust) holds assets on behalf of beneficiaries. The trustee (the person running the trust) decides who gets what income and when — i.e. it’s at their discretion. This structure often appeals to investors seeking extra privacy and asset protection.
Furthermore, because the property is owned by the trust — not an individual — it can be protected from personal creditors. And, it also gives versatility on when and how your wealth is passed on to loved ones. However, a trust requires detailed returns and statements — and you pay accounting and legal fees to create and maintain the trust.
Company Ownership Structure
The best corporate structure for real estate investing creates a separate legal entity to you — i.e. the company — which owns your property. Should your property face legal or financial troubles — the liability is with the company, not you. And, companies may also deliver favourable tax implications — as they pay tax at the current company rate.
That said, setting up a company involves significant expenses and annual compliance requirements — such as financial statements, tax returns, and possibly ASIC demands. Furthermore, companies don’t receive the 50 percent CGT discount — and you can’t offset the company losses against your personal income.
SMSF Ownership Property Structure
An SMSF (Self-Managed Super Fund) allows you to manage your retirement savings, instead of handing the job to some unknown third party. Your SMSF can invest in property, giving you the potential to supercharge your nest egg — offering potential rental returns, capital growth, and possibly borrowing capacity.
However, holding property in an SMSF means strict rules and compliance demands. You can’t access these assets until you retire — and setting up and maintaining the fund leads to legal, administrative, and accounting costs. Working with an expert is vital to navigate the complexities and advantages of SMSF property ownership.
Why Do People Use Different Investment Structures?
Why bother using a real estate investment fund structure, right? It’s simpler to buy a building and own it yourself, rent it out or resell it, and then you make money. But, in reality, things are a little more complicated.
How the property is owned can make a big difference to your bottom line and how well the assets are protected — whether you’re a first-time investor or a seasoned pro.
Different structures for property investment are used for:
Asset Protection
It’s important to defend what you’ve created, or are in the process of building. The correct investment structure can safeguard your wealth from potential business risks, personal liabilities, or unexpected events — whether you own duplexes, strata buildings, or commercial premises.
Structuring can be about creating a safety net so that if things go wrong, your assets are protected. That said, there are many rules and regulations to abide by — to make sure you’re not setting up real estate investment structures purely to avoid creditors.
Estate Planning
Let’s face facts — you’re not going to be around forever. At certain times in our lives, we begin to think about the future and what will happen to our wealth, and the security and wellbeing of our loved ones, when we eventually pass on.
Depending on your circumstances, a solid property investment structure can assist with the smooth transition of your assets to others — forming part of your overall estate planning.
Quarantining
Consider quarantining to be separate compartments within your investment ship. More than preventing the spread of losses, it’s a strategic move to optimise your tax position — protecting your portfolio from a possible easy-target approach of the ATO.
By dividing different types of investments, you create distinct tax entities. This can have a significant impact on your ‘back-end’ liabilities. For example, isolating a negatively geared property can prevent its losses from being offset against the profits of other investments.
Tax Implications
Different structures have different tax rules, and understanding those rules may lead to beneficial outcomes. As an investment structure example, if you’re a high-income earner, holding your investment property within your SMSF might, as an unintended consequence, mean you pay a lower tax rate on your rental income.
However, keep in mind that you cannot use a property structure primarily to reduce your liabilities. Part IVA of the Income Tax Assessment Act (1936) states that the ATO can cancel a tax benefit obtained through a scheme — if it determines that the primary purpose was to obtain a tax benefit.
In short, a well-structured property investment may lead to favourable taxation outcomes — but it cannot be created specifically to reduce your tax bill.
Structuring Your Investments for Success With PPS
A property investment structure is a crucial step in your portfolio journey — it can ring-fence your assets, provide financial efficiency, or ensure a legacy for your loved ones. And, since no two peoples’ aims or circumstances are the same, there are no straightforward off-the-shelf solutions.
At Property Portfolio Solutions, we expertly guide you through the many options and help you understand the implications of each structure, allowing you to make informed decisions. By auditing your current portfolio, we give you tailored advice that puts you on the path to achieving your goals.
With PPS As Your Structure Advisors, You Benefit From the Following:
Expertise in property portfolio restructuring — we’ve helped our loyal clients optimise their investments.
Knowledge that you have unique goals — we get to the heart of what you want to achieve, and build a structure that takes you there.
Understanding everyone has individual circumstances — we help you create a structure that fits your personal situation.
Advisors who speak your language — we explain even the most complex structure features in plain English.
Comprehensive service — ensuring your property strategy aligns with your structure.
Honesty and integrity — we tell you the truth, even if it’s not what you want to hear.
A commitment to your success — working tirelessly to help you reach your goals.
A passion for property — we love what we do, and it shows in our dedication to your portfolio.
Long-term partners — we stick by your side throughout your property investment journey.
Property Investment Structure FAQs
What Is the Best Tax Structure for Real Estate Investing?
You cannot create a property structure specifically looking to reduce your tax liabilities — that’s illegal. Part IVA of the Income Tax Assessment Act (1936) makes it clear that the ATO can cancel a tax benefit obtained through a scheme, if it determines that the main purpose was to obtain a tax benefit.
What Is a Private Equity Real Estate Fund Structure?
A private equity real estate fund pools money from many investors to invest in property. It’s a much more complex structure than those outlined above and is often used for larger-scale projects or developments.
What Is the Best Business Structure for Real Estate Investors?
There isn’t a one-size-fits-all solution that could be called the ‘best’ structure. It depends on your individual circumstances, goals, and risk comfort levels. Options include individual ownership, joint ownership, trusts, company structures, and SMSFs.
What Is the Best Loan Structure for Investment Property?
This depends on your situation. Common options include principal and interest loans, interest-only loans, and lines of credit. Each has its own advantages and disadvantages in terms of repayments, flexibility, and affordability.