This report looks at two alternative methods for the holding of residential rental properties, which both provide the greatest amount of flexibility and tax-efficiency and should be considered by every person looking to invest in property. For years, many people have promoted the benefits of residential property investment. Some will tell you it's been the best investment of their lives, while others who went to less scrupulous promoters, overpaid for their investment and, in some cases, lost their homes. Generally, however, residential investment properties will remain a staple diet for those people who want to build their wealth.

When considering the acquisition of any asset, it's crucial to consider how the asset is going to be held. That is to say, do you acquire it in your own name, in a company, in a trust, or in a superannuation fund? The Government has decided to partially reinstate the ability to combine superannuation, residential property and debt. Yes, you can now use the funds in your self-managed superfund as a deposit on a residential investment property. Up until 11 August 1999, many people had used their super as a deposit on property in an arrangement that used a unit trust. This was, however, outlawed, and effectively spelt the end of private superannuation funds investing in residential real estate.

Although a new dawn is about to start with self-managed superfunds borrowing, this will not apply to every person. For a whole range of reasons, people may still elect to acquire assets, including residential rental properties, outside of the superannuation environment. As will become apparent, many people (both prior to 1999 and after) have acquired residential rental property in a way that limits their options in the future.

Roy Morgan Research

In a recent survey undertaken by Roy Morgan on behalf of InvestorOne Pty Limited, only 1% of residential property investors surveyed held the property in a unit trust. The results are surprising, considering the prohibition on a person transferring their residential rental property to their super, unless its owned by a unit trust. In addition, 78% of residential property investors surveyed stated that they purchased the property as part of their retirement planning, and yet acquired it in such a way that they can never transfer it to their superfund. The research gives a real insight into the psyche of the residential property investor and what motivates them to acquire a property. The survey also included questions concerning where investors got advice, whether they knew of the restrictions when a unit trust isn't used, and whether they'd use a trust for their next purchase. Again, the results were surprising and reinforce the argument that investors are not getting the right advice or inform tion concerning property investment. There has been a steady shift in the methods by which property is held from the traditional structure of the own name of an individual to discretionary trusts. However, the idea of using a unit trust to involve a superfund has not really filtered-through since the introduction of legislative changes in 1999. From this, it's obvious that investors and their advisors aren't well informed when it comes to structuring residential property investments.