March 2007

The following considerations should be given to minimising the risks involved in property ownership.

Finance:  Having all your affairs with one financier can be problematic if one of your investments does not perform.  In this event your financier will naturally keep a close eye on all your investment facilities.  Also, having all your investments with the same financier usually involves an "all moneys" clause in the loan agreements which may have the effect of cross-collateralising loans.  Therefore default under one facility is a default under all facilities.  This risk is minimised by spreading your loan facilities with different financiers.  It also allows you to take advantage of the specialties of particular financiers.

Land Tax:  Land Tax is not grouped like some other taxes and accordingly one investor can hold several properties through different entities and avoid the properties being grouped for land tax purposes.  In light of the recent substantial increases in the unimproved value of land in South-East Queensland, owning properties in separate entities could significantly reduce land tax and increase returns.

Insurances:  Obviously your insurance should cover the full replacement value of the building.  As a result of the recent sharp increase in construction costs this can be a trap.  The replacement value of your building should be reviewed regularly to ensure you are not underinsured.

Security: If you are in the fortunate position of not requiring a high loan to value ratio (60% or under) you may be able to negotiate a loan on a non-recourse basis.  The effect of this is that your financier will not require personal guarantees as security for the advance and will only be able to have recourse to the secured property in the event of default.  This is only applicable to ownership structures involving companies and trusts.

Seek the advice of your accountant and lawyer regarding your particular circumstances.

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