Are you about to undertake a real estate development project but not sure what the best structure for property development makes the most sense for you?
Well, stick around because, in this article, I will share everything you need to know when it comes to determining your developments business structure.
I’ll also share the best structure for property development, or at least the most common and why so make sure you stick around to the end.
Let’s get into it.
One of the first things beginner developers get stuck on is structuring up the business side of their development when starting.
Getting this set up is one of the very first steps you will need to take.
Although you can purchase a property and nominate onto the contract, it’s always best practice to be set up and ready before signing any deals or making legal commitments.
As I say in almost every video and blog, you need to do your own research because assuming that your current accountant or lawyer understands or has experience in property development can be dangerous.
It’s honestly not as scary as it sounds, but it’s absolutely high risk because it can be costly if you get a bum steer with some bad second-hand information.
Typically, when developers think of their development structure in most cases, they are thinking about tax savings, which for sure is necessary.
But there’s are a bunch of other things that need to be considered early.
Do you have any partners or shareholders, what’s your objective holding, selling or a combination of the two? Is it a one and done, or do you have plans to do another?
Considering partners? Here are some property development partner ideas to get you heading in the right direction.
- Partners or shareholders
- Project objective
- Is your project a one-off?
Not all projects or individual circumstances are the same, and there is no blanket answer for the best development structure.
It will heavily depend on your answers to the questions I’ve just outlined and potentially many other key factors that we’ll get to.
When it comes to development structures, there are common options but also less common options.
Common structures include unit trusts, discretionary or family trusts and limited companies.
- Unit trust
- Discretionary/family trust
Less commonly used structures include partnerships, joint ventures, and self-managed super funds.
- Joint venture
- Self-managed super funds (SMSFs)
Now one last point I need to make, and it is essential.
I’m not saying don’t seek professional advice. You must seek professional accounting and legal advice before committing to a townhouse development project.
I am saying that you need to be knowledge-ed up to participate in the conversation with whoever you are seeking advice from.
You want to understand the direction you are going, the decisions that are being made around your structure and why they make sense for you.
This is the only way to move forward with absolute confidence without the risk of a nasty surprise down the track.
- You need to consider all stakeholders when determining your structure.
- Your property development structure should make sense relative to your business goals.
- You want to ensure you are protecting your assets, both current and future.
- You need to appreciate and understand the risks that you are accepting.
Now let’s look at the most common structure, a unit trust.
Now there are two types of trust setups as listed earlier. You have unit trusts and family discretionary trusts. Each does different things, and they can even be used together.
To keep it simple, though, you can look at it like this.
Family trusts suit a single-family whilst a unit trust makes sense for two or more families.
So generally speaking, trusts, whichever kind makes the most sense for you, is an excellent place to start when considering your development structure.
Typically, because they allow flexibility around profit distribution which can be super beneficial in many circumstances.
There you have it. Everything you need to know when trying to figure out what the best structure for property development is – for you!