Protect your investment property and wealth

Diversification, risk assessment, and good portfolio management are all great strategies to protect your investments and generate wealth. But when it comes to the specific challenges of real estate and property investment, how can you get the most out of your money? After all, real estate is probably one of the biggest purchases and investments you’ve ever made.

Keeping your house or building in good shape directly relates to how well you can earn your money back, whether it’s in the form of your quality of living, or the hard cash you get from renting it out or reselling.

Aside from having financial value, real estate may also carry sentimental value; your house is a symbol of your independence and future growth. It’s also something you can pass down to the next generation.

Protecting and even growing your money in the form of maintaining a property, such as your home, apartment, or building, are the goals of any forward-thinking property owner. This article highlights the many different ways you can protect your investment property and wealth.

Get insurance

Any property that can cost you hundreds and thousands of dollars to repair should be insured. Whether we’re talking about homeowners’ insurance or landlord insurance, the bottom line is you should have enough coverage.

Your house or building should not be underinsured. In terms of real market value, your coverage should be able to provide the amount of money it takes to rebuild your property in case it gets destroyed or damaged.

There are many different types of insurance that you can get to ensure your wealth through times of disaster and instability.

  • Income protection insurance can help you manage the risk of diminished earning capacity (e.g. if you get ill or injured)
  • Landlord insurance protects you against the damage a tenant can do to your property, which includes AWOL tenants with rent debt

Create a trust for legal and tax protection

If you’re starting out into real estate management, there’s a big temptation to directly own and manage all of your properties. This means that each title, mortgage, and contract of lease is under your name.

Personal liability for all rental transactions and involved property is great if you don’t want a headache during tax season. However, this style of management gives you a lot of personal risk. The moment a tenant sues you on negligence and wins, you risk losing all of your personal properties, including all of your real estate investments and personal wealth. Your creditors, i.e. the bank, can also seize all of your property because they have a claim to it.

However, if you are managing multiple properties and assets, it may be time to establish a trust. You can then transfer the ownership of your property investments to the trust, which reduces your level of personal risk.

A trust is a recognised legal entity. Instead of being the owner of your portfolio, you become the trustee and the established trust beneficiary. Your creditors have absolutely no claim against you as a beneficiary.

For this particular tip, get the help of a good real estate legal team or lawyer. Similarly, you should consult a tax professional before committing to any big change when it comes to ownership and operations. Maximising earnings is possible if you get the most efficient and cost-effective system for tax reporting and returns.

You can get a good overview of the types of trust, as well as how to establish one, through this article.

Separate your property loans

If you take out loans for multiple properties from the same bank, you run into the danger of losing your entire portfolio if you fail on repaying on one of the loans. Other property owners add the bad habit of cross-collateralisation to the problem.

The best practice is to separate property loans. This means getting loans for each property investment from a separate bank. When one property takes a hit, you won’t be at a loss and at the mercy of one bank. Likewise, you won’t be left drowning if one of your banks tanks. Your liabilities are spread across different areas, reducing your risk and strengthening your portfolio.

Of course, before you start financing more property investments, you should consult a finance broker for the best possible segregated loan structure.

Say no to negligence, hello to building inspections

The biggest risk factor in inviting trouble into your home is neglect. This is especially true for property owners who are in the business of leasing residential properties. If you’re going to take away anything from this article, it’s the importance of good maintenance and recordkeeping.

Tenants who get hurt because of a building defect or a rotten beam can have grounds to sue you. That’s a clear loss of money down the line, as well as a big hit to your reputation as a landowner.

Drawing the line on what negligence is and isn’t can be difficult, which is why there’s no 100% protection against it. However, proactively taking steps to say no to negligence is important.

One of the simplest yet most effective strategies in preventing negligence complaints is to conduct routine building maintenance and inspections. A building inspection provides a clear and updated record of the structural issues present in the building, if there are any. Plus, committing to an annual building inspection for all of your properties builds your reputation and credibility as a property owner and investor.

What are the components you need to watch out for?

  • Overall condition of the house or building
  • Defects and damages
  • Structural components such as the roofing, support and flooring
  • Pest damage
  • Smoke alarm testing

Check out this article on the value of regular building inspections which outlines how you can save money on more expensive repairs and how you can protect your tenants from safety issues.

Keep your assets protected by getting help from professionals

Aside from preventing cases of negligence, the work done by companies like Vital Building and Pest Inspections goes a long way in increasing the market value of your home. Your tenants or fellow housemates want to have that peace of mind over the structural integrity of the house.

When it comes down to it, protecting real estate and property assets is much like protecting any other type of investment. You need to guard against risk through instruments like insurance, or cash management options like creating a trust. You also need to create opportunities of wealth generation through regular building inspections.

Follow these key strategies and keep earning from your property investments!