Should I Buy an Investment Property Through a Trust?

Should I Buy an Investment Property Through a Trust?

There are all sorts of roads to property investment success – some better than others. It can often depend on your individual circumstances as to the best road for you.

One question that I hear pretty regularly is…

Should I buy my investment properties through a trust?

First, a little disclaimer. I’m not an accountant or financial advisor. You really need to talk to someone who is licenced to provide advice on trusts and who knows your individual situation before you make a decision. But I can share what I know and my own opinion.

What is a trust?

A trust is basically a company entity. You can set them up to do a number of things, including owning property.

What is a trustee?

A trustee is a person who can control and manage all aspects of the trust administration.

What are the advantages of buying property through a trust?

Trusts have several advantages that may appeal to property investors:

• In certain cases, trusts pay lower tax rates
• You may be able to distribute funds to your children through them at lower rates
• They may help to protect your assets if you are sued through your employment (especially worth considering if you’re in a position where this is reasonably likely, for example, surgeons)

What are the disadvantages of buying property through a trust?

On the other hand, trusts can also be disadvantageous to property investors:

• Lending ratios are lower, capped at around 80% in a trust, whereas property investors who purchase in their own name can borrow 90, or even 95% of the property’s value
• This can mean slower growth for portfolios held in trusts

So, who should buy property through trusts?

Weighing up the potential advantages and disadvantages, it’s probably not worth going into unless you’re in a form of employment where your assets might be at risk if you are sued. Either way, if you feel that trusts might be right for you, it’s worth seeking further advice from a licenced professional.

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Happy property investing,

Daimien J Patterson