Protect Yourself - The inside investors way.

The human life is proverbially uncertain an as an investor, you are challenged with uncertainties every living day. Ironically, many people enter into arrangements, relationships and ventures without a plan to protect themselves in the event that things may go wrong or contrary to their predetermined goals. Instead, they naively presume that all will be perfect: Typical attitude of an average mindset.


Making the big mistake of failing to protect yourself before uncertain problems arise can be painful and embarrassing. In Warren Buffet words, “Only when the tide goes out, you discover who have been swimming naked”.

What's more, in today's uncertain world, where people are losing their income (job or business), their pension and their house. Whilst others are caught up in bankruptcy proceedings, huge tax bills, divorce, lawsuits and illness or death of a relative or business partner it is increasing important that your protect yourself, your family and your wealth. Inside investors know how to protect themselves and their wealth from such problems. Having great friends and knowledgeable advisers is just not enough. You might as well look forward to starting over again. As Buffet maintains, “Should you find yourself in a chronically leaking boat, energy devoted to changing boats is likely to be more productive than energy devoted to patching leaks”. Average thinking people try to fix the leak instead of starting over again.

Applying the right technique to your situation makes your boat to stay afloat. Your protection plan is, in disguise, your exit strategy. So, When sailing the rough seas of life and investing, it is absolutely imperative to protect yourself the inside investor way. Like Tony Robins states, “The quality of your life is in direct proportion to the amount of uncertainty you can comfortably deal with”.

To deal with life and investing uncertainties, first and foremost you should cover ass with as much insurance as possible. Don't be a whimp! The advantage of taking out insurance is that you get to transfer any risk or liability from yourself, onto the insurance company (who got expensive lawyers and time to fight malicious cases).

Secondly, set up numerous trust vehicles (like charitable trust and family trust) and whatever you buy, buy it through the trust and not in your name. A trust will safeguard you against repossession, law suits, bankruptcy, punitive taxes and so on. Am sure you have heard about people who have made bankrupt or are sitting in prisoner for non payment rental income tax, council tax, capital gains tax, inheritance tax and so forth.

Thirdly, nowadays lawyers and judges are getting smarter every year and are getting around prenuptial agreements and the tricks behind offshore companies. However, inside investors are always one step of the legal and financial system and know exactly what to do protect their assets in times when uncertainty rear it ugly head. They insert special clauses into any contract they sign thus mitigating any future risk or liability.

In summary, you need to think like an inside investor to protect yourself. In my book, I discuss 7 different techniques you can use to protect yourself, family and assets as an investor.

SIPPs: Ideal vehicle to buy Commercial Real Estate.

Sophisticated investors and inside investors rarely, if at all, buy assets in their name, and least often, commercial real estate. Whereas, average investors buy everything in their name. A SIPP or Self Invested Personal Pension is one type of ownership vehicle in which an investor can put a wide range of investment products into. These includes, stocks & shares, bonds, derivatives, hedge funds, private equity investments, unlisted securities and/or commercial property. In this way, a smart investor can spread the risk in his portfolio and protect himself/herself from lawsuits. Nevertheless, in this blog, we will focus on the benefits of using a SIPPs to invest in commercial real estate.

SIPPs became popular in the UK as a result of failings in corporate pensions and flop endowment policies. As an indirect result, the Government of the day passed legislation (Chapter II Part IV of the Finance Act 2004), enabling UK residents to set up and administer their own pension plans by acquiring assets, tax free and being able to draw an income when they reach retirement age. Today, SIPPs are the fastest growing pension vehicle worldwide, especially among astute investors.

This class of investors use SIPP to purchase CRE to capitalise on a host of benefits, for example:

1).Massive tax savings: When buying a commercial property with a SIPP, the investor gets a 40% tax relief or discount. Then, when the investor rents the property, he does not pay any rental income tax to the government. Likewise, when he sells the property, he pockets all the money and does not have to pay any capital gains tax. Smart investors enjoy the additional benefit of not paying any tax on the mortgage interest payment (just the capital repayment) and in the case of death, his heirs/beneficiaries will not be liable to pay any inheritance tax. (WARNING: The tax rules vary from jurisdiction to jurisdiction and these rules are UK applicable. Tax rules in USA and Australia are totally different).

2)Financial Leverage: If you chose to take out a mortgage via a SIPP to buy commercial property, you will be eligible to borrow up to 50% of the value of the SIPP. In this way, you can raise more capital to buy bigger assets. You can also form a syndicate or joint investment quite easily using the SIPP. All SIPP shareholders, when pooled all their resources together can finance bigger investments deals.

3).Financial Protection: Sophisticated investors love SIPP for the simple reason that if bankruptcy were force upon them, all their assets within the SIPP vehicle is exempted from lawsuit and cannot be sold off to pay off the debts.

4).SIPPs are also ideal for asset owners to passed on their investment to their children or any official named beneficiary, tax free. In this way, the beneficiary gets all the money, property and whatever asset remains in the SIPP.

5).A SIPP is one of the best ownership vehicle for buying commercial property which are short-stay high yielding properties, such as, Caravans, hotel apartments, hotels, Lodges.

So, if you are serious about maximising your cash flow, return on investment and equity appreciation, the a SIPP may be the ideal ownership vehicle when buying commercial real estate.

DISCLAIMER: Views and opinion in this blog are those of the author and should be treated as financial or investment advice on the part of the reader. It is strongly recommended that you seek the advice of a qualified professional in this field before you take any action.