Do you want to be a successful property investor?
If so, you'll have to do things differently than most investors.
One way to do that is to treat it like a business.
Today, I'll be discussing this concept in detail with Australia's leading property tax accountant Ken Raiss, director of Metropole Wealth Advisory.
I'm sure you'll find his take on things will be a little different, but you’ll get some great insights to help you move your property investing up a level.
Property investors start their journey with good intentions great enthusiasm, but unfortunately, 92% don’t manage to get past the stage of ever owning one or two investment properties.
And less than 1% of investors build a portfolio of six or more properties.
So, where did they go wrong?
But in most cases, the root of their problem lies in their strategy – or rather the lack of one.
It never fails to amaze me how many people go into property investing without any sort of strategy, let alone one that is specifically crafted to match their personal criteria, goals, time frame, budget, and risk profile.
It’s like starting a new business without a business plan – and without any idea of what you want to sell, or how.
And if you think about it, property investing is a business decision.
So, how do you treat your properties like a business?
Every property that doesn’t fit your overall strategy will be the wrong choice.
It’s critical to get some expert guidance when developing your strategy to ensure you consider all the important factors relevant to your current position and long-term wealth creation and lifestyle goals.
All too often people are led into a false sense of security that residential property in Australia will grow in value.
But less than 5% of properties are investment grade.
You must also consider the money you use both from savings and borrowings.
In today’s market, you will need to spend $300k even on a less desirable investment and much more for an investment grade.
That level of spending should require an understanding of the economic and market dynamics, a capability to identify the gems, and an ability to negotiate professionally.
Most sellers go through a real estate agent who is trained and practised at this and performs these functions daily.
It is not a level playing field.
You need to tip the scales back in your favour by seeking professional help.
Buying the right property then gives you the best chance to maximize future capital growth which leads to improved rentals, equity to use for future purchases, and as part of an exit strategy to maximize capital gains.
As a business, you need to consider future and current use, funding, potential to manufacture equity (as opposed to just waiting for the market), buying structure, impact on future lifestyle, and intergenerational wealth transfer.
This requires a more holistic approach where the various components of tax, structures asset protection estate planning, risk, and retirement must be all taken into account under one central umbrella.
Asset protection needs to be considered under three circumstances:
You work in a litigious profession such as a surgeon.
You find yourself in a management role where you take on responsibilities for employees where issues such as occupational, health, and safety concerns are part of your responsibilities.
When you are wanting to wind down and live off the fruits of your hard work you do not want an unfortunate accident to wipe out your wealth through litigation.
As a property investor, your risk is higher than normal as your tenants can sue if they are injured through your carelessness.
In the case of litigation, you risk the loss of all your assets which could include the family home.
There are specific steps we should all take such as not being in a position to be sued and having adequate insurance, but we all know this is not always enough.
Many people are advised to move these assets to trust if they feel sufficiently concerned but this triggers CGT and stamp duty and for the family home the potential loss of the main residence exemption and land tax exemption.
There are strategies to eliminate these taxes which we at MWA assist our clients with and that is to implement an Equity Transfer Trust.
You can also purchase your assets in a more appropriate structure from the beginning.
Links and Resources:
Some of our favourite quotes from the show:
“If you don’t ask your consultants the right questions, sometimes they won’t be forthcoming.” – Michael Yardney
“A trust is really just a document, a piece of paper, with lots of clauses in it. And they’re not all the same.” – Michael Yardney
“It’s critical to buy your assets in the correct structure upfront.” – Michael Yardney
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