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17 December 2007

Finance structuring

Most people are familiar with the concept of asset structuring and protection but fail to look at how they are structuring the finance of their investment portfolio.

What are the most common mistakes made by people when structuring their finance?:

1. Unnecessary or excessive cross collateralistion of properties leading to the exposure of the family home to risk and debt;

2. Poor cashflow management through the inappropriate use of banking facilities and automation systems such as direct debits etc, and/or there is an insufficient cash buffer for those unexpected situations and events;

3. Erosion of tax benefits by allowing the pay down of deductable debt and through the mixing of deductable and non-deductable debt in a single account;

4. Excessive cost of interest through failing to get the best deal (professional packs discounts), allowing cash to sit in savings accounts instead of offset accounts and when honey moon rates revert to the standard variable rate and no planning is done to extend the effect of these strategies

5. Another mistake people often make, is not knowing how much money is available to them. This means available equity is not working as hard as it could be and they are not investment ready when an opportunity arises in the market place. It is much better to put in a “clean contract” then one subject to finance or other conditions that make it unattractive for the vendor and the sales agent;

6. Poor account structures with low lending ratios across multiple properties, lack of automation of accounts, multiple cross collateralisation and incorrect financial product mixes;

7. Poor non-deductible debt reduction strategy. They have too much “bad debt” on the family home and/or it is not being paid down quickly enough;

8. Failure to optimise tax position through appropriate asset protection and tax minimisation strategies through the maximisation of deductions and the control of distribution of income through company and discretionary trust structures;

In order to avoid these mistakes and minimise the impact of poorly structured finance on your investment portfolio you should speak with a broker who deals with investment and commercial transactions regularly and understands asset structuring put into place by good tax advisors.

Yours in property