Avoiding The Domino Effect With Asset Protection
Bundling your assets into one entity may save money upfront, but this rookie error puts everything you own at risk. Discover the ins and outs of asset protection with Business Concepts Group director, Chris Reed.
Maintaining separation between assets is vital for wealth builders - no more so than during property development when incorrect structures could put everything you own on the line from day one. A thorough strategic process is required, with a clear vision of where you are now and what you want to achieve on completion. You won’t just be looking at the proposed development, but your entire current and future asset base to protect everything right down to the family home. Rather than rushing in, this process needs to start prior to sourcing the right piece of land and well before you consider signing any contracts, or you could make costly errors. These decisions must be made in tandem with professionals, as only someone working in property all the time will be qualified to give you the correct advice.
Big picture viewpoint necessary to protect current and future assets
It’s vital to safeguard your existing assets or risk the domino effect, with each falling piece causing another to crash until there’s nothing left. You may have a primary place of residence, existing property portfolio and shares plus any other assets you may have. If they’re not set up with the necessary circuit breakers between them for your protection, it won’t take much for your entire financial ecosystem to fall apart. As such, there can be quite a lot of advance preparation required to create the necessary stop-gaps to protect existing assets from anything that comes next. This strategic planning and potential reshuffling of assets must be undertaken by a professional to ensure any actions are compliant and safeguard your wealth building initiatives. You’ll then be able to ensure any legal documentation - including contracts for sale - are prepared with the correct structure as purchasing entity.
Upfront structural advice required for every single project
Even though a new development may have the same look or feel as the last, each will have its own quirks - different funding partners or another final objective, such as keeping a single unit from an entire development. Each of these elements mean you must get upfront structural advice for every single project to mitigate risk and ensure a profitable outcome. Dealing with professionals is without question. Lacking experience, you may set up one structure thinking it’s the best possible one for your project but you’re invariably causing another problem. This was the case of one particular couple who came to us after they acquired a property through a company structure with the intent to build on it and sell. They changed their mind half-way which meant they couldn’t get the primary residence capital gains tax exemption when they sold. Had they sought professional advice in advance, we could have helped set them up with a structure that had more built-in flexibility to cater for a change in direction mid-way.
All-in-one structural solutions: high risk and ineffective
It’s common for new investors to be keen to use the same structure for each development as a perceived cost-saving measure. If they don’t get the right advice upfront - or they’re not sufficiently educated on the need for separate structures - they see bundling everything in together as helping to maximise their bottom line. After all, each separate entity has its own set of start up costs and ongoing accountancy fees that continue for the lifetime of that asset. The risks of this perceived cost-saving measure, however, are huge. Each new development requires a separate structure so that not only is it protected but your next development and the next after that, or be vulnerable to creditors, insolvency and bankruptcy. Using the same structure could also inadvertently give the beneficiary of one development access to another - it’s a fine line that must be dealt with effectively to ensure protection.
Mapping out your current position in advance of securing a development site means you’ll be ready with the right structure in place prior to signing any legal documents that may otherwise put your existing assets at risk. You’ll then be ready to undertake your proposed property development with the necessary stop-gaps to future-proof your finances and make the profits that are yours for the taking.
Discover more about how asset protection can safeguard your financial future at upcoming Property Development Master Class in Melbourne. You’ll hear from leading industry experts on asset protection structures, risk mitigation, legal documentation, attracting investors, financing your project, town planning, market research, sales strategies, due diligence, financial feasibility and completing the project. Click here for more information and to secure your place.