Withdraw super to buy investment property

My husband is aged 57 and has $620,000 in super, working parttime and salary sacrificing $1000 per month, we can withdraw $290K from our super now and are very keen on buying a unit here in Perth ($260k) while the prices are still down. Our main reason is having a place for our daughter who cannot afford a mortgage by herself, so the plan is for her to live in it and pay rent to us. Are there good tax breaks available to us. I guess what I'm asking is what are the advantages or disadvantages of doing this. Many thanks, Sue.

Can i suggest you speak with someone who is experienced in the advantages and disadvantages of withdrawing from super and can look at your whole circumstances.  It might be more advantageous to borrow and get negative gearing and then have your husband convert part of his super to a transition retirement pension.

Hi Suehe

Rather than make a withdrawal from the fund why dont you look at merely buying the property in the name of your Suepranuation Fund (I am assuming it is a Self Managed Fund) paying cash for it and getting your daughter to rent it from you at a Commercial rent.

If you wanted your daughter to take ownership of the property you could always buy it and then wrap to her on Vendor terms and both you and she would benefit. She would receive the First Home Owners Grant which she could use to discharge her debt to you.

Certainly points to ponder.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

thanks for that Richard but its not a self managed fund, we're with Telstra super

If that's the case, can you split your super into a new fund SMSF to buy the place?

I am opinionated. Take me at face value, read between the lines.

Everyone knows that you should only believe half of what you hear, a genius knows which half.

I didn't believe that I could have less than nothing, until I had debt.

Yes, please look at a SMSF - you could end up in a much better situation - nil tax for starters plus better asset protection.

Terryw

Not quiet Nil Tax in your position but i know what Terry means and agree.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

Hi, Richard's assessment is very good. Vendor terms to your daughter is something that will really benefit both of you. It's a strategy that not enough people use because they distrust mixing business and family ties but the financial implications suggest that it is a no brainer.

Start with the end. Suppose your daughter pays $300 p.w. rent.

You withdraw $ to buy the unit/house or whatever. Wrap it so she 'owns' it. She receives $14000 [maybe more]

Thereafter she pays you $300 p.w. [less 4000 p.a. for costs] = $11600

Your husband then 'contributes' $25600 back into the superfund. It costs you about $245000 all in.

Apologies for being a bit 'overbearing' but couldn't help using the numbers. It's something that I suggested to a family member.

KY

I think we may have to see a financial advisor then,, it's hard to know where to start. Thanks to everyone for your advice. Sue

suehe,
            Above is assuming your daughter can afford $300 per week in rent, plus pay the running costs ? By your post it maybe too much for her?
            I wouldn't suggest a financial advisor, try to find a good accountant with knowledge and practices in property.
            Whilst it maybe a nice fuzzy feeling to buy and rent to your daughter, it maybe also a giant financial mistake. Make sure you have a watertight contract in case it all goes bottom up, your daughter ( unsure of her personal details ) may hook up with a bum who may take you all for a ride etc ( of course I do not wish this on you ), but just trying to advise you to be careful.

           If all is good, then take the advise of TerryW and QLD007 or kum yin yau or investige at least, but with superannuation now starting to take off and property to stay low for years,........ well best of luck.

One of the beauties of you wrapping the property to your daughter is you can set the sale price, interest rate and repayment program to suit her income.

I am not sure i would waste money on a Financial Adviser (unlike myself not all of FA promote property) as most of them only have one thing at heart and that is there pocket and not yours,

God carrying on like this I will get expelled.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

Buying property in a super fund is one of the most exciting changes we have seen in many years. However you do need to see a financial Planner. It is my understanding that if you buy in a self managed super fund neither you or your direct relatives can live in the property. You would want to check this out before proceeding.

Nigel Kibel
Australian and New Zealand The United States Property Researcher and education

Hi, if you get expelled, Richard, we'll set up a web site with you as the permanent honarary member or President or CEO or whatever name you choose!

Suehe, please reread Richard's replies & consider whether you want to have the cost of an FA.

Unless you already have smsf, buying the property within the smsf incurs a lot of running costs [I budgetted 3000 for mine but it's already exceeded that]

With the wrap, what you're doing is 'lending' the money to your daughter to buy the property. The wrap is necessary [you'll have legal costs] so that should your daughter default, you can garnish the property & rent it to someone else.

The 'rent' paid by your daughter is yours to do as you wish but it's added to your personal income. At age 57, your husband still has a few years of 'transition to retirement' by which he can make lump sum contributions or salary sacrifice to 'write off' his earned income.

The only paperwork can be done by your accountant & there's no need for other 'advisors' to charge you fees.

Again, apologies for the longwindedness. We don't wish you to be stung.

All the best,
KY

Hi Nigel

There is no issue in wrapping the property to her daughter.

Under the Related Parties section of the SIS Act you are unable to rent the property from yourself however as long as Suehe daughter is not a Trustee she will be fine.

$3000 sounds like a lot of money to establish a SMSF. We normally charge $999 but i guess it pays to shop around.

Not convinced it is necessary given the rest of the information provided.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

Thanks so much for your advice, I'm still a bit confused but am thinking of seeing a guy I work with (at the West Australian) who writes a  column in our business pages and has no affiliation with any fund. Pity you weren't in Perth Richard, I could see you. Cheers, Sue.

Make an appointment to see Chan & naylor in perth. they will advise how to proceed in using SMSF to buy aproperty and how to strucure it correctly to maximize the tax benifits.

Yes and charge you and arm and leg for that advice.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

Hey Richard,

Regarding your comment in relation to:

Under the Related Parties section of the SIS Act you are unable to rent the property from yourself however as long as Suehe daughter is not a Trustee she will be fine.

I would be looking at something like this in a couple of months. I was going to rent out the investment property to myself after it has become vacant, to do some maintenance works to it. I was going to rent it out from my Company (who owns it). As I am a director, is this not allowed.

If not, I am sure I am able to write down allowances (accomodation, etc - which is quite generous from white my accountant has informed me) and claim for it that way.

I was going to get in there and rent it out to myself for only a couple of weeks to a month, but think it would be best to claim the allowances. Only thought of living in unit while doing maintenance works for insurance purposes and security reasons.

Cheers,

Hi Bundy

As I am a director, is this not allowed.

If the property is held in your SMSF then simple answer is NO i am afraid.

Cheers

Yours in Finance
Richard Taylor
Ph: 07 3720 1888
Residential & Commercial Finance Broker.
richard@tayloredfinancialsolutions.com.au.

Is the rental property owned by a company or a SMSF? Do you mean the company is the trustee of the SMSF?

If it's a SMSF trustee company, then no, you can't rent it, but if it's a trading company with no connection to an SMSF, then yes.

Thanks for clearing this up.

It is a Company and it is trustee for my family trust.

I will tend to go down the path of giving myself an allowance, in order to spend a couple of weeks doing up repairs to the property.

Cheers,