Avoid costly errors from cross-collateralised finance and entity structuring errors with your residential property investment A team, says buyers agent Julie Crockett.
Residential property investors backed by experienced advisors are more likely to avoid costly mistakes including cross-collateralised finances and placing their assets at risk by purchasing within the wrong entity. There’s a huge difference in the amount of money saved - and made - by those who get things right from the start and those who don’t, with success dependent on those in your corner. Your investment ‘A team’ should consist of a buyers agent (who you’d see first to ensure your purchasing strategy matches your long-term goals), mortgage broker, accountant, financial planner and a solicitor or conveyancer.
Time and effort involved no different to get things right
It doesn’t take any longer to structure everything properly, nor does it cost you any extra considering each of these elements needs to be put in place prior to purchase. But how it’s all done is crucial to mitigate risk, maximise your results and set yourself up correctly to build your portfolio into the future. Your first step is to appoint a buyers agent who’ll work with you to develop a personalised strategy. They’ll discuss what you’ve done so far with regard to investing and look at where you’re up to in the purchasing process. Dependent on your real estate portfolio needs, your buyers agent will advise you on next steps and the professionals with whom you’ll need to engage.
Minimise the risks of cross-collateralisation
When you’re building a portfolio, seeking different sources of finance for each residential investment is crucial to safeguard your purchasing power. The danger of working with just one lender means that they hold security on all your properties, which puts you at risk in a number of ways. Say you have an underperforming property in your portfolio and go to sell another. If your finances are cross- collateralised (i.e. all with the one lender), they could withhold proceeds from your sale to pay down debt on the aforementioned underperformer. This puts your lender in the driver’s seat to make decisions on where your money goes, independent of your wishes.
What’s in a name? Investment structure fundamentals
Entity options for purchasing your residential investment include trusts (self-managed superannuation funds), tenants in common, joint names and your own name, but doing so incorrectly can get you into a huge mess. One of the biggest risks is for self-employed professionals who purchase in their own name. If their business is sued, then their personal assets are at risk - including the investment portfolios they’ve been building to secure their future. It’s critical to get this entity right for your own personal circumstances, limiting your exposure and putting your wealth in danger. Other problems arise from buying in joint names with friends - if one partner dies, then the other inherits if the structure isn’t set up properly. This can be a potential nightmare and an expensive mess to unravel.
The right property for you depends on your goals
Finance and entity decisions firmly locked in place, you’ll return to your buyers agent for help with the purchasing process. Working with the right professional here can save you time and money, using their expertise to nail down your purchasing strategy. Whilst novice investors often buy based on friends’ suggestions or because they like a particular area, sophisticated investors partner with professionals to make the best decisions for their needs. For example, one of my current clients is a fantastic saver. She’s opted for an off-the-plan investment as it will give her time to keep building her nest egg until its completion. That will give her more money in the bank to fund her next investment, whereas other people I work with want to get their portfolio moving sooner and choose established property instead.
Your A team for AAA results
Don’t make a mistake that can cost you a fortune to unravel. Be strategic about how you invest and achieve real success by purchasing within the right market at the right time, with the right yield and capital growth potential. Get it wrong and you might just be stuck waiting for the market to rise or even worse - being forced to sell. Be alert to the dangers of cross-collateralisation, which can really cause you pain economically if you’re looking for finance and the bank’s controlling all your assets. It’s really important to seek professional advice from your A team and have upfront conversations that can help mitigate a disaster.
See full article here: http://www.apimagazine.com.au/property-investment/top-notch-investors-have-their-a-team-ready