All Topics / General Property / Buy property using your SUPER fund.

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  • Profile photo of Benjamin CsikosBenjamin Csikos
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    Join Date: 2010
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    In 2007 Legislation in Australia changed which allowed people to use the money in their super funds as a deposit on an investment property.   It's taken some time for the idea to catch on, and it can be a tricky thing trying to find some decent information about it. 

    To get it done, it requires setting up a self managed super fund.

    This is why I would buy a property through my super.

    1. Significantly lower tax!  only 10% capital gains if you sell before your retirement, zero capital gains if you sell afterwards. Also a maximum of 15% contributions tax before, and none after.

    2. It's money that I previously didn't have access to, and I'd prefer to take control of my own money rather than allow someone else to do it for me.

    3. Normal super funds are always taking out fees for their services. It can be a bit like trying to fill a bucket that has a hole in the bottom.  Having your own SMSF puts the power back in your pocket.

    4.  If anyone is watching the news, I sure don't think the government is going to be in a position to look after me when I retire. I need something that's a little better than even 200'000 if I wanted to retire at 60 and live for another 20 years… on ten grand a year. I'd either have to keep working, or starve!

    5. Because if you know the right people, it's not as hard as it looks.

    If anyone wants to know more, flick me an email. [email protected]

    Profile photo of TerrywTerryw
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    There are some good strategies out there involving SMSF and property, but I would still hesitate for a few reasons:

    1. Equity can't be accessed. ie once growth kicks in you cannot increase the loan.
    2. Its complex using a SMSF to buy property
    3. Establishment costs are high
    4. Rates are high
    5. LVRs are lowish
    6. Its a good idea to diversify and invest in some shares using super too.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
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    Terry has hit the nail on the head buying using an instalment warrant can still be fraught with difficulty.

    Only one lender in Australia does not require the Trustees of SMSF to give a Personal Guarantee and their lending terms and credit policy are not straight forward.

    Just to correct Ben's post 10% is the concessional CGT rate a SMSF pays on the sale of a property and this is only applied where the asset has been held for 366 days otherwise it is 15%.

    Sure i manage my own Super fund and sure i own property within the fund but this forms a mix of assets i hold and certainly would not recommend to any client use all of his / her retirement funds to purchase property. 

    Think twice before you are convinced this is the only strategy to adopt with your money.

    Richard Taylor | Australia's leading private lender

    Profile photo of rickypleasrickypleas
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    Benjamin Csikos wrote:

    5. Because if you know the right people, it's not as hard as it looks.

    that is my problem. searching for the right people for the job.

    Profile photo of Richard TaylorRichard Taylor
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    No buying using a SMSF is not that difficult at all especially if you are looking to gear against the property.

    If you are then as Terry and I have mentioned earlier there are a few issues to consider.

    Richard Taylor | Australia's leading private lender

    Profile photo of Benjamin CsikosBenjamin Csikos
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    @benjamin-csikos
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    Terry's right. I agree with him 100%. To expand on his points a little:

    There are some good strategies out there involving SMSF and property, but I would still hesitate for a few reasons:

    1. Equity can't be accessed. ie once growth kicks in you cannot increase the loan.

    This is true, at least for the moment.  If one was planning on doing a 'Jan Somers' by using the first property to get the next and so on,  at present it can't be done.  You're limited to one per deposit.  If you wanted to have a second property in your super, then you would need to have a fresh deposit in your super (somewhere along the lines of another 100k) to go again. This is because the first property is somewhat 'fenced in' by a trust when you set it up. This has it's cons, but also it's pros too, as the same thing protects the buyer from copping a hammering from the bank should the deal go belly-up.   I am hoping that sometime in the future the government makes it easier to access the equity from a superfund property, because after all, the idea is to create wealth and set people up with a retirement fund. Putting a block on the ability for duplication is only counterproductive to the overall goal.

    2. Its complex using a SMSF to buy property

    It can be, but not so much for the investor as it is for the people they employ to get it done. If you know the right people (like I do, because it's my job to!) it's a relatively smooth process for the investor.

    3. Establishment costs are high

    Depends on what you consider high.  We do the whole lot for about 5-6 grand. That includes setting up the SMSF from scratch, and doing the paperwork for using it to buy a property.  I've heard stories of people charging as high as 30 grand to get it done. (Ridiculous.)

    4. Rates are high

    Actually, I might ask you this question Terry.  I've been told it's about half a percent higher? Is that right? How much higher is it?

    5. LVRs are lowish

    Banks usually want you to put a third in as a deposit. That can be a lot to find, when comparing it to a regular loan (not through super) where you can have a much smaller deposit. However, it's a weigh up. One way gives you lower or zero capital gains tax, but requires a bigger deposit. The other way is a smaller deposit, but you still get hit with cap gains. What do you think is better?

    6. Its a good idea to diversify and invest in some shares using super too.

    I'm definitely not saying that I think property is the most profitable of investments. Not at all.  After speaking with several financial planners on the subject (I am not one!) , a lot of them say that they much prefer stocks and shares etc as it has a higher potential to turn a bigger profit. I cannot disagree.  But then, not everyone is interested in stocks or shares. I don't know anything about them, and it doesn't really get me all that interested either. It just doesn't sound like my kind of fun.  I'm fully aware that if I educated myself on stocks and shares, I would probably learn how to make more money through them than through property. The thing is, I enjoy property. I'm excited about property. I like the concept, I loved Steves book, and I plan on duplicating his methods. It may not be the absolute best  option if I was trying to maximise my profit through the most efficient means, but surely you'll agree that getting involved, taking control of my own super, and investing it through a means that still works and that excites me is better than leaving it sitting there doing nothing in an externally managed fund?  

    Thoroughly enjoying this chat.

    [email protected]
    http://www.superselfmanaged.com.au

     

    Profile photo of number 8number 8
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    @number-8
    Join Date: 2010
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    LVR's are not lower??????? How about a 100% loan + costs………….There is a way around everything.

    LVR's are not lower when you on-loan to your SMSF (using an on-loan agreement). This may be done by taking equity from your PPOR, investment property or like. The SMSF is then liable for your interest rate at market rates i..e. personally you will make a small profit from your SMSF due to the market rates of super loans, being higher then the market rates for a typical home loan.

    http://www.birchcorp.com.au

    Profile photo of TerrywTerryw
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    yes, but you could do this with any property.

    LVRs are lower for super fund lending.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of dazlb2003dazlb2003
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    Local radio news today has been broadcasting that the ato are going to crack down on people using their smsf to buy property illegally. Would this be because they haven't done it properly or maybe trying to access the cash? I'm researching the idea at the moment and can see nothing but positives. Don't want to jump in only to realise that I've stuffed it up and tax department are after me.

    Profile photo of dazlb2003dazlb2003
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    The same news bulletin also predicted that australian house prices will rise between 12 and 20 % over the next 3 years.

    Profile photo of Scott No MatesScott No Mates
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    Got this article thru earlier today:

    Borrowing within super to invest in real estate – a marriage made in heaven

    It may clarify what you can and can't get away with.

    Profile photo of smsfpropertyinvestsmsfpropertyinvest
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    @smsfpropertyinvest
    Join Date: 2010
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    The regulations are changing to require a Financial Plan to be provided if you are recommended this strategy by any one. Expect it to be a requirement  by September 2010. This will stop Accountants being able to actively be involved in assisting clients unless they are qualified.

    The concern is to ensure that people taking up this strategy are fully infiormed. I specialise in this area and there is no plan to stop the practice, rather ensure people are fully informed. Cooper review recommendation is to maintain the option but monitor it.

    Costs total of $3/5,000 to set up get the advice. Bank interest is usually the standard variable on residential with an extra legals of approx $1500. Commercial is a little more but still within the range  if doing it direct.

    Profile photo of Paul DobsonPaul Dobson
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    Does the loan still need to be a "non recourse loan"?

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Yes.

    Richard Taylor | Australia's leading private lender

    Profile photo of itsandrewitsandrew
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    @itsandrew
    Join Date: 2007
    Post Count: 294

    Hi all,

    I was researching buying property with a SMSF today and came across an API article posted on a financial website. http://www.gatherumgoss.com/wp-content/uploads/2010/01/070-071-Super.pdf. For me it was a good introduction to the concept and the process involved.  It also highlighted some pitfalls.

    Regards,

    Andrew

    itsandrew

    Go as far as you can see and you will see further.

    Profile photo of number 8number 8
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    @number-8
    Join Date: 2010
    Post Count: 333

    I worked with an SMSF specialist for a period of my life. What I found was that a SMSF purchasing a property is good, but not suitable for everyone. i.e. it is very good if your want to buy commercial property and lease it to yourself. What I did learn, Mum's and Dad's were often better suited to purchase external to super. Why do you want to retire with a stack of money at 65 when you can create wealth by property externally to super and retire at 40…….. For the young, I see the retirement at 65 years strategy as conceding defeat. Focus on plan 1: Retire young.

    Any excess monies should be placed into an environment that you can access and move around, a SMSF has too many regultaions and too restrictive. Contrary to what you hear, you will pay a premium (thats right after purchasing the trusts and corporate trustees for over $2000, the bank will vet these for another $2000, the accountant will set you up for $3000 and the bank will charge you a premium interest rate and yearly fees (if you cannot borrow internally), the ongoing auditing and accounting is another cost and any changes to rules will require your deeds updated…….I am a Financial Planner and Mortgage Broker that has a large interest in purchasing property and the ability to do all this, yet I have not to date…… This must suggest something. Summary: it is a YES to some and a No to most.
     
    In any financial plan, you should diversify with both shares and property, here's my thought. Allow your property acquisitions external to super (cheaper and easier) and purchase your shares with a low cost industry fund (For the record FSS are the cheapest in Aust. -Money magazine 2010, well performed also), and NO, I have no financial relationships with any financial institution. This is a general approach, with exceptions to the rule. i.e. purchasing a holiday house can be good with SMSF, particularly if it is somewhere you are to retire. Do your due diligence, I often see large financial errors by intelligent individuals, Don't get caught in the hype…..

    http://www.birchcorp.com/au

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