It’s a big fear of many aspiring property investors…
“What if something goes wrong and I lose everything?”
I get it. The biggest purchase most people will ever make is the family home. It’s more than just bricks and mortar: it’s a place for family, security, and comfort. Which is why it’s so devastating when a few bad choices or an unfortunate event causes a domino effect that ends up with someone losing everything.
In life there’s no guarantee that everything will come up roses. Things can happen that put people in sudden and severe financial strain. Accidents and illness. Marriage breakdowns. Business closures. Unexpected tax bills. Even personal liability cases where someone gets sued.
But the thing is, there are ways to reduce the risk of you losing everything if one of life’s sudden surprises threatens to put you under.
I’m talking about asset protection, and it’s a central element of my property investing strategy: The Markoski Method.
A Tale of Two Business Owners
Let’s compare these brief stories to see how different things can be with – or without – an asset protection strategy.
Case 1: A Successful Cafe Goes Down Due To A Minor Accounting Error
Recently I heard about a successful cafe that was doing an amazing job. Their business was roaring and they were making great profits. But they made a small GST error which no one noticed for some years.
Eventually, the ATO uncovered this error, and came knocking on their door. They pointed out the error, and told the business owner that he owed the tax office $275,000.
Now, the owner was in his fifties heading towards retirement. He had paid his house off, but to pay the ATO he had to sell his one big asset: the family home. Now he is living in a rented apartment, and his plans to retire soon have been shattered.
He was a person who had worked very hard his entire life, but sadly a small error cost him everything.
Case 2: A Bankrupt Business Owns a Huge Mansion and A Ferrari
I saw in the paper the other day a report about another business owner who had amassed great wealth over his career.
Unfortunately, he lost tens of millions of dollars on a bad deal. Much more than he could pay from his personal savings. Even if he had sold all his assets, he still wouldn’t have been able to repay the entire losses.
Long story short, he went bankrupt… but still drives a Ferrari and lives in a huge mansion on the Gold Coast.
The question is… how?
How does one person lose everything while another keeps his lavish lifestyle?
Say what you like about Ferrari drivers (haha), but the Gold Coast business owner had one thing the cafe owner didn’t: an asset protection strategy in place that saved him from losing it all.
Let’s take a look at what you can do to protect yourself too.
How high is your risk level?
As I’ve already pointed out, bad things can happen to anyone. So asset protection is something we should all think about. However, there are some areas where you can clearly identify your risk level is greater than the average person:
– If you run a business
– If you are a director of a company
– If you are a lawyer, doctor, advisor, or in another high-risk profession
– If your family could go into dispute (sad but it does happen often)
If you’re any of these types of people, I recommend seeing a specialist that can help you set up legal structures that protect your assets.
I am not an expert in this area which is why I’m not giving you advice on what to do. I personally work with a lawyer who specialises in this area to protect my portfolio, and he is a member of the Circle of Safety that my BlackBelt members have access to as part of their investing strategy.
But I can tell you that a common way Australians protect their assets is through a family trust (also known as a discretionary trust).
What is a Family Trust?
Family trusts have been used to protect people’s assets for over 600 years – they can be traced back all the way to the Crusades!
When you put your property into a family trust, it means that no one in particular owns the asset. Instead, the trust owns it. It’s generally established by a family member for the benefit of members of the ‘family group’.
You could think of a trust as a kind of container. All assets that are placed into the container become property of the trust, which is controlled by the trustee for the sake of the beneficiaries.
When the asset makes a profit or appreciates in value, that value is shared with beneficiaries of the trust who are within the ‘family group’.
What’s particularly important here is that assets within a family trust are protected from creditors. So even if a claim is made against you, the assets are not in your name and therefore cannot be taken from you.
The good news is that putting your assets in a trust is not expensive or difficult, provided you’re working with an expert that knows what they are doing. It will cost you a little fee and paperwork to get the job done, but it’s well worth considering if you are in a high-risk category such as I have mentioned above.
When you are already going bankrupt, it’s too late to put these protections in place, and your assets are vulnerable. Even if you could see bankruptcy coming and you managed to set up a trust quickly, the courts have the ability to undo every transaction you’ve done in the last 6 months, including setting up the trust. And you’re back at square 1.
As they say, ‘prevention is better than cure’!
Protect your assets using the Markoski Method
If you’re interested in learning more about how to set yourself up to invest in property safely and with carefully mitigated risk, I’d love to help.
My Markoski Method is a tried and tested way to profitably invest in property while protecting your income and assets at the same time.
Asset protection is one of the components of my 14-Day LIVE Positive Property Challenge. The Challenge guides you through creating a Game Plan for getting your first, second, third, fourth (and beyond) property.
At the end of the Challenge, you’ll be clear on how to get market-ready and understand what the exact steps are towards your property investment goals.
It’s a great way to get educated and start taking action to secure your financial future using a cash flow-positive property portfolio.
Click here to find out more about the 14 Day Live Positive Property Challenge