What are your thoughts on purchasing a residential property within my SMSF and why would this be more beneficial than investing in Managed Funds/Equities?

Best person to answer about strategy is a financial planner - I can answer some basics from a finance point of view. SMSF is a medium to long term strategy.

SMSF Lending

There is regulation and confusion about SMSF lending and how to borrow. Each lender has different policies, each borrower different goals and servicing ability. This is a general introduction to SMSF lending “policy” :-

• Residential security still 80% lending - most are now 70%.
• Commercial security still at 70% lending - most 65%
• Off the Plan - single contact - now 60% max
• Brand new SMSF - ok for many
• Credit - some can have minor credit impairment
• Interest only 10 years - most 5 yrs
• Minimum sized fund - most $150k before purchase and range from 2.5% - 20% “other investments or cash” - to $300k
• Interest Rate and Fees vary widely
• Independent Financial Advice – not always required but recommended

Happy to answer any questions

Hello there Peter.
I think the best person you should talk to is your account as there are lots of tax positions that relate to your personal circumstances that may make it beneficial or not beneficial to go down this path. Hopefully your accountant is well qualified and experienced in dealing with Self Managed Super Funds. If not, you should look around as this is not an area for those who do not have much in super already.

The self managed super fund accounts need to be audited each year and this can cost up to $1000

Hey Pete,

In my experience the core reason I like property in super over bonds/equities/managed funds etc is not what most would think.

Property is a lumpy asset, and while it does actually change in value frequently - think of an auction price achieved when you're out rain pooring down like cats and dogs vs a sunny day with everything working to your advantage. My reason is property typically gets held long term which provides Ling term wealth growth that doesn't come with buy-sell costs and the risks of punting the wrong stock.

There is also the benefit of leverage. If you had say $100K in super invested in shares / mgt fund and made say 8% annual return that's good. If you used the same $100K to buy a place worth $300K with a mortgage you have $300K working for your retirement - ie rental income based on a $300K asset and capital growth again based on the same. So 8% mgt fund might get you $8K return. If property doubles every 20 years (5% per year) that's an annual return of say $15k.

Ultimately it's a personal decision and. I particular strategy is brilliant or terrible. If you're the type of guy that like to buy and hold maybe property is the go - if you like a punt then maybe playing with the market is the go. Alternatively maybe you hedge you're bets and put some funds into a property and have say 10-20% you can play with on the stock market.

Hope this helps,

Damien @ Squirrel Super

Hi Pete,

This is a great question and one that I have a lot of clients asking me.

With the pool of superannuation benefits in Australia increasing, SMSF’s are becoming the hot topic, however you also need to understand the costs and responsibilities involved.

Below are some key differences between retail superannuation funds and SMSFs:

Retail Superannuation
Number of Members 1
Typical Size of Fund $0 to $200,000
Typical Cost of Fund Total costs 1.0% - 2.5%
Type of Investments Available Managed Funds (including Listed Property)
Direct Equities
Exchange Traded Funds
Term Deposits Cash
Legal Obligations The Trustee of an APRA regulated fund must be registered or licensed through APRA.
APRA funds are subject to a substantial prudential regime.

Self Managed Superannuation Fund
Number of Members 4
Typical Size of Fund $200,000+
Typical Cost of Fund Depends on the size of fund and types of investments. Ongoing Accounting and Audit
costs range typically between $2,000-$3,000 per annum for a fund with basic . investments and assets.
Type of Investments Available Managed Funds (including Listed Property)
Business real property
Direct Equities
Exchange Traded Funds
Term Deposits
Cash Collectibles (e.g. Artwork)
Legal Obligations Trustees of the SMSF ultimately accept the legal responsibilities so should under their . obligations before setting up a fund.

Typically we do not recommend clients establish a SMSF until they have more than $200,000
in assets as the ongoing expenses of running the fund aren’t cost effective when compared
with a retail or industry fund.

A SMSF provides a greater level of control that can’t be achieved with a retail or industry
superannuation fund in terms of the underlying investments and strategies available. Through the
extra level of control you will have a greater level of engagement in the investment decisions that
ultimately build your retirement nest egg.

If you would like to see if this option is appropriate for you and if you have any further questions, please don't hesitate to contact me on the below details.

Thanks,

Ronald Pratap
Principal Financial Adviser
RP Wealth Management
Level 2
351 Oran Park Drive
Oran Park N.S.W 2570
T: (02) 9188 1547
M: 0434 502 079
E: ronald.pratap@rpwealthmanagement.com.au
W: www.rpwealthmanagement.com.au
F: https://www.facebook.com/RPWealthManagement