How Do You Know You’re Investing for the Right Reasons?
The great Australian dream has always been to buy your own property. Many people buy their own home and/or invest in property at some point in their lives. However, do you know exactly what you are buying and the reasons why you are buying? Sometimes a property may seem like a good buy, but it does not necessary mean that you should proceed with the purchase. This article is designed to give a brief overview of some of the key considerations that you should give to buying a property from a legal perspective.
Purpose of the Investment
Before you make any investment, it is important that you consider the purpose of the investment. When purchasing a property, consider you intentions for buying. Many people purchase property for one or a combination of reasons:
- Capital growth;
- Potential to develop the property;
- Long term rental return; or
- Reduction of income tax.
It is crucial that you are aware of the purpose of the investment as this will determine many other aspects of the purchase.
Based on your reasons for choosing to invest in property you will then be able to decide on the best structure to purchase the property. When buying your own home it is generally advisable to buy the property in your own name, however that is not always the case with an investment in property.
From a legal point of view the most important consideration in any structure is asset protection. This is not only to protect the asset in case something goes wrong with your investment, but also to quarantine your other assets where there is risk involved. The legal risks with owning a property must always be considered in light of the financial and tax consequences of purchasing the property in a particular structure and you should always have your accountant, lawyer and financial planner liaise with each other to ensure that the correct structure is being used.
The most commonly used structures include purchasing the property in:
- Your own name (generally you only do this for a low risk property and if you intend to reduce your personal income tax);
- a Pty Ltd company (used where you want to separate the property from your other assets);
- a discretionary trust (generally used where you have a family purchasing a property);
- a unit trust (generally used buy property developers or where you are investing with multiple investors); or
- a superannuation fund, (used by people who operate a self-managed superannuation fund).
Conducting the right due diligence on a property is essential to ensure that you get the property that you pay for. While it may seem like a significant investment at the time of buying the property, it is important to note that doing the right searches will save you a lot of money in the long run. Examples of the typical due diligence enquiries and searches that we recommend our clients undertake include the following:
- A valuation of the property. Often people buying a property will not know the true value of the property being purchased, and thus it is always a good idea to engage the services of a professional valuer (especially where you are not familiar with a market) to ensure that you are not paying more for a property than it is worth.
- A surveyor. A surveyor will ensure that the boundaries of the land are in the correct position and that there is no building overhang or encroachment on any of the boundaries of the property. Engaging a professional surveyor could save you thousands of dollars in the future.
- A Building and Pest inspection. This is an inspection by a licensed company that conducts a visual inspection of the property to ensure that there are no visible building or pest issues. Again, engaging a professional inspector to undertake this inspection is vital to ensure that you do not buy a property with significant issues.
- Conveyancing searches. These searches can be undertaken by our office and determine if there are issues with any of the government bodies in relation to your property.
The above is a snapshot of the legal considerations when investing in property. At Streten Masons Lawyers we act for a lot of property investors and can assist you to ensure that you buy the property that you want and do not have any issues. Should you wish to speak to one of our solicitors about the process please call our office on 07 3667 8966.