Structuring Success: Unlocking the Potential for Owning More Than 10 Properties

Exploring Property Investment Structures: A Comprehensive Analysis

Have you ever pondered how seasoned investors accumulate portfolios of 60 or even 200 houses? The key lies in strategic structuring. Below, we outline the advantages and disadvantages of various property acquisition structures.

Pros of Utilizing a Company Structure for Property Purchase:

1. Enhanced Borrowing Power: Certain lenders, such as Macquarie Bank and Liberty, permit the exclusion of company debt from servicing calculations, provided the company remains profitable. This flexibility allows for an extended borrowing capacity. Unlike personal borrowing, where all debts must be disclosed, utilizing a company structure allows for the creation of new entities once borrowing limits are reached.

2. Directorship Flexibility: Easily change directors, including appointing family members such as parents. This approach enables ongoing property acquisition, with the debt no longer reflecting on your credit report upon relinquishing directorship.

Cons of Utilizing a Company Structure for Property Purchase:

1. No 50% CGT Discount: This structure lacks the 50% Capital Gains Tax (CGT) discount when selling, making it less suitable for long-term investment strategies.

2. Separate Company Tax Return: Incur the requirement for a separate company tax return, adding an administrative layer.

3. Setup Costs: Establishment of a company involves a cost ranging from $500 to $700.

Cons of Utilizing a Trust Structure for Property Purchase:

1. No Land Tax Threshold in NSW: In New South Wales, trusts are not eligible for a land tax threshold.

2. Losses Trapped within Trust: Any losses or capital losses incurred within the trust cannot be distributed.

Pros of Utilizing a Trust Structure for Property Purchase:

1. 50% CGT Discount: Enjoy a 50% CGT discount when gains are distributed to individual beneficiaries upon selling.

2. Servicing Advantage with Corporate Trustee: When employing a corporate trustee, certain lenders may exclude company debt for servicing calculations, enhancing borrowing power similar to the company structure.

Pros of Buying in Own Name:

1. Simplicity and Affordability: The process is straightforward and cost-effective.

2. Access to Government Grants: Unlike companies and trusts, individuals can access government grants.

Cons of Buying in Own Name:

1. Full Debt Disclosure: All debts must be disclosed, contrasting with trust or company structures where some debts may remain undisclosed based on lender policies.