Risks and pitfalls of investing from a legal perpective

Weighing up the Risks and Pitfalls of your investment

Avoiding or minimising the risks and pitfalls with property investment can be accomplished following these three simple rules:

1. Obtain the right advice from the right consultants.
2. Obtain the right advice early.
3. Be commercial and follow through with the advice.

Without obtaining the right advice upfront before you enter into any contract or agreement the consequences can be fatal, regardless of the size of the property small or large.

Here are some common pitfalls and traps people may fall into when investing in property:

• Signing an agreement without obtaining advice – BIG MISTAKE. Even the smallest of investment properties can cost you thousands of dollars down the track in unwanted legal fees and potentially, payment of damages and penalty interest if no advice or the wrong advice is received;
• Incorrect purchasing entity – if you obtain the right advice upfront before you sign this should lead you to ensuring the right legal entity is purchasing the property and is noted on the contract accordingly;
• No conditions – every transaction is unique, therefore almost always there are some form of conditions required for both seller and buyer. The type of deal you are wanting to enter into must be discussed upfront and conditions included to favour and protect you, whether as buyer or seller;
• Incorrect conditions – this is sometimes worse than having no conditions. What is the point;
• Ambiguous conditions – if the conditions are ambiguous how can each party interpret what they mean. The conditions need to be clear and simple but effective;
• Deposit details –these must be clear as to the amount, when payable and how. Methos of payment can vary. In long terms deals the deposit is usually invested.

Liability limited by a scheme approved under professional standards legislation. Who is entitled to the interest when the deal is completed would need to be accounted for;

• Type of agreement and structure – getting the right agreement and structure for your investment is paramount. Obtaining the right taxation advice is critical;
• Stamp duty considerations – very important. You do not want to paying out more money in government taxes than you have to;
• GST considerations – important and often missed or not discussed. The sale and purchase of property can have GST consequences and a buyer may be misled as to whether a purchase price is inclusive or exclusive of GST;
• Legal & accountancy advice – always obtain the right legal and taxation advice upfront before you sign and commit to the terms of the deal.

If you obtain the right advice upfront you should be able to avoid or minimise most if not all of the above issues. Getting no advice, or getting the wrong advice from the wrong consultants or professionals can be materially damaging to you reaching your end goal, and in some cases, can have detrimental and costly legal consequences for you.

This article has been provided by Despina Priala from Priala Legal