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How protected are your assets

How protected are your assets

By Sarah Lefebvre on Dec 13 2017


Losing tenants or failing to replace them quickly can result in a painful hit to an investors cash flow.  To help protect your assets against this you need to remain competitive.  Don’t be tempted to increase your rent above what the market is prepared to pay and ensure that your property is well maintained and includes features that today’s tenants have come to expect.  

Your property manager is a great resource and can provide you with all necessary market intelligence and how much your rent increases could be whilst still remaining competitive.

Additionally, to help protect your asset for the future, ask your property manager to provide recommendations and a schedule of jobs worth doing over the next 1-3 years.  Enhancements such as installing air conditioning, adding a garage or an outside entertaining area, adding a laundry or re-doing the kitchen may be required to protect your asset, but undoubtedly will require you to budget for the expenses, so having a 3-year plan is important.  At the same time your property manager should be able to give you a guide as to the likely payback in terms of rent increases that the enhancements will bring.  

Preparing for the future is important to protect your assets

Are your assets structured and insured effectively?

Whilst many of us feel financially secure as a result of owning an investment property, it is important to also consider if it is structured and insured in the right way to withstand any potential nightmares.

Many investors understand the importance of being protected but they fail to take out insurance or to receive the full benefits associated with their policy.   Without the correct insurance in place, investors run the risk of losing everything if something goes wrong. For an investor, or for that matter any home owner skimping on insurance is not a good idea.

As an example, if someone was injured or worse at your investment property, and there was a lawsuit brought against you, it is possible that your insurance would not fully cover the amount of the claim.  If your investment is owned in your own name, then all your assets can be claimed in the lawsuit including your own home!

Setting up the right structure when purchasing an investment is critical and it is important that you seek advice from your financial planners, accountants and solicitors who have experience with property.  They will be able to assess your overall situation and help you implement a strategy that is most suitable to your circumstance and your portfolio.

A quick look at the different structures

If you are planning on owning assets other than investment properties such as your own home, it is advisable to keep them separate as it gives you some protection with claims only able to come against a single property.
When purchasing a property, there are typically three ways to do it.
  1. Buying it in your own name
  2. Buying in the name of a company
  3. Buying in the name of a trust
The simple way to purchase a property, in the name of the investor which allows negative gearing concessions and is fairly simple to organize.  It does however provide very little protection against a lawsuit.

Buying in the name of a company allows the liability to remain with the company, while the shareholders are protected against the banks seizing their personal assets.

The final option is buying in the name of a trust.  This can be very complicated, but essentially, if you buy a property in a unit trust then you can apply negative gearing to it because the debt is still in your name and the distribution from the trust becomes income.

Get professional advice

It is important to try and buy your investment in the most appropriate structure as making changes down the track or adding insurance policies after damages, can be very costly.

For this reason, it is critical that you seek advice from your accountants, solicitors, financial planners and insurance specialists before deciding on what is right for your portfolio.

 

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