All Topics / Help Needed! / Using Superannuation to Purchase an Investment Property

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  • Profile photo of donavan1970donavan1970
    Member
    @donavan1970
    Join Date: 2012
    Post Count: 17

    I have heard that people can access their superannuation to invest in an investment property.

    Is this true?

    How can this be done?

    I have around $110k in an AMP account, all of this amount is employer funded. I am 42 years old.

    Profile photo of PLCPLC
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    @plc
    Join Date: 2012
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    Yes, it can be done via a self managed super fund (SMSF).

    Simplifying it, the SMSF contributes the funds for deposit and buying costs, the remainder is a loan against the investment property. Loan is repaid via rent from the property, super contributions, investment income.

    Both the SMSF and the trust holding the investment need to be setup correctly.

    You would need to seek professional advice.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hi Donovan

    If you shoot me an email i will send you an Ebook i wrote on the subject.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of TheFinanceShopTheFinanceShop
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    Make sure you deal with an Accountant you has experience with SMSF loans. You will be surprised that there are many that don't know what entities need to be created for an SMSF. The same applies for a mortgage broker or banker.

    Make sure all the limitations, restrictions and costs are explained to you before you take the plunge as they do vary from traditional property purchases. Lastly be careful amount putting all your eggs in the one basket. 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of Scott No MatesScott No Mates
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    TheFinanceShop wrote:
    Lastly be careful amount putting all your eggs in the one basket. 

    Regards

    Shahin

    A dollop of great advice which many ignore – diversification is still very important.

    Profile photo of donavan1970donavan1970
    Member
    @donavan1970
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    Thank you Tom, Richard, Shahin & Scott for taking the time to respond.

    Your feedback is valuable, and provides me both with a knowledge of what is possible, and some of the traps to look out for.

    I will investigate this option further, I am sure there are plenty of educational books available, that will further expand my knowledge in this area.

    I am sure that many of you have already gained a great deal of knowledge through reading, and perhaps could advise of any recommended books that would be both current and relevant to the Australia tax laws & superannuation rules.

    Thanks,

    Donavan

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Hi Donovan

    Hate to say no you wont find too many books available as the current Superannuation legislation as it is ever changing.

    I have just written an article for a Financial Planning magazine on some of the do's and don'ts of Superannuation can certainly email you a copy once i get back to Brisbane.

    It covers areas like renovation, repairs, strata titling etc of property inside Super.

    Certainly with the amount you have inside your Retail Super you have enough to start a SMSF and can easily diversify with gearing. Structured correctly you could keep the balance of funds in cash offsetting your SMSF property loan until you decide what to do with it.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    Hi Donavan

    For under $70k I got a SMSF set up and funded the deposit and stamp duty on its first property.  For $110k you'd be able to set up, buy one place, and be close to having enough funds to buying the second.  Further they will well and truly have paid themselves off by the time you hit retirement age, at which time you can choose to use the rent as income, or sell one or both free from Capital Gains Tax (ie pure profit).

    You need to ensure you have an accountant and mortgage broker on board both of whom do these kinds of setups all day long.  Piece of cake.  Don't be someone's guinea pig while they try to learn the ropes.

    Feel free to drop me a PM if you like.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of donavan1970donavan1970
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    @donavan1970
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    Richard,

    I look forward to reading you article. The more information I can get on SMSF the better, as it seems an area that I definitely need to take control of.

    Profile photo of donavan1970donavan1970
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    @donavan1970
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    JacM,

    Great to hear from someone in a similar position to myself (from a Superannuation point of view).

    As I am in Melbourne, would it be rude of me to ask who you used to help set-up your SMSF, and get your opinion on how well it was handled.

    I too am in Melbourne, although I am prepared to invest wherever the opportunities are.

    By the way, love you slogan of 'collecting big piles of bricks that earn income', is the Geelong property market worth a close look at?

    Thanks,

    Donavan

    Profile photo of KevinGrunertKevinGrunert
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    @kevingrunert
    Join Date: 2011
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    Hi Donavan,

    If you're looking to buy an investment property in a self managed super fund, I'd strongly recommend that you check out ESuperFund.

    Their web site has plenty of information and should answer all of the questions that you have around what is/isn't possible both now, and after you retire. Also, their establishment and ongoing fees are a lot lower than dealing with an accountant to manage your SMSF as they've automated a lot of the procedure.

    They have a page on their web site that covers using your SMSF to purchase residential property with borrowings that explains everything in detail – you can check it out here

    One of the things you'll need to keep in mind is that you can't develop property (ie buy vacant land and build), or even undertake a renovation when purchasing in SMSF. This means you're only looking at generic growth/buy and hold, which for many areas is likely to result in losses while the SMSF holds the property. 

    Also, as someone else has mentioned – diversification of assets is important in your super fund. If you're relying on one property, and there's a slump in the market when you need to sell, it may not be the best investment.

    Hope these few tips help.

    Kevin.

    Profile photo of Richard TaylorRichard Taylor
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    Sorry Kevin just can't agree on using someone like ESuper.

    Hate to say in the SMSF world one product doesn't fit all and the little quirks often required with a SMSF Deed you are better  off using an expert like Jac M has mentioned.

    Also i can tell you many of the SMSF lenders require Deeds to be re-written with organisations like ESuper and of course you bear the additional cost.

    Sorry to repeat myself over and over again but YES you can buy land and construct a property or buy a house and renovate it. Just a matter of being fully across the SIS legislation.

    I have done both as well as wrapped a couple of properties, bought and strata titled a block of 4, used my SMSF to provide 2nd mortgage loans etc. All totally legal if done properly.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    I've heard a few negative results from people that used ESuper too. 

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    Hi Donavan,

    Sure.

    The accountant I used to set up the SMSF for me (and the bare trusts required by the lender at acquisition stage) is:

    Douglas McCracken-Skeggs

    He can be found at the office of Ron Skeggs and Associates, 275 Geelong Rd, West Footscray 3012, tel 9687 0933.

    His email address is [email protected]

    Douglas also does my SMSF's annual tax return and audit. 

    For the SMSF mortgages, Richard Taylor, who has already posted on this thread.

    Both of these boys drove the process to perfection.  They are gems.  Very tidy, no unexpected surprises.  In fact it all went so well that on settlement day of SMSF IP # 1 when the solicitor called to advise settlement had gone through I was like "Really???  Are you sure the State Revenue Office or the Land Titles Office didn't stop us dead in our tracks?  I thought this SMSF stuff was supposed to be a minefield!"  Both Doug and Richard are extremely across the SMSF rules and keep you in line.

    For what it's worth, I did a lot of digging around and specifically decided not to go with one of these "hey we are great we bundle it up for you and it will all be very easy" mobs on the internet.  On the surface, it all sound wonderful.  But.  Things can get nasty expensive down the line when you just want to ask a little question, or your tax return is not a text book case.  There are folks out there pretending setting up and managing SMSFs is way harder than it actually is, and charging clients a fortune to shield them from it all.  Hmmm. 

    Be very aware that if you get someone to set up your SMSF and they do not do it properly, it is very expensive to fix it, and you'll struggle to find a proper accountant who is prepared to clean up the mess for you.  You'll be in what is known as no man's land.  Whatever you do, go with an accountant and broker that others have used successfully.  Take recommendations ONLY from people who have set up their SMSF, bought and settled on at least one SMSF property, gone through at least one SMSF tax return and audit, and whose SMSF has been open at least a year.  Such people will by that stage have seen and understood all the phases, and have seen what kind of fees ASIC and ATO issue annually.  Any issues with accounting or mortgage broking would have been fleshed out by then you see.  It would be my recommendation that you only go with arrangements where the one person is your accountant – not a random assortment of fifteen people that pass your file around like a hot potato.  You need one person to be clear on your goals and circumstance and provide suitable advice accordingly, and you want every bit handled by that person (who should be a fully qualified accountant who is experienced in SMSFs that buy property).  You don't want work experience kids, assistants, or anyone that is not your accountant touching your SMSF at any time.  You do not want mistakes, you want a squeaky clean SMSF smiley

    Cheers!

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of KevinGrunertKevinGrunert
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    @kevingrunert
    Join Date: 2011
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    Hi Richard,

    I wasn't aware of this possibility – but that certainly changes my view on SMSF.

    Based on what I'd read on ESuperFund around not being able to develop property, and having almost 40 years ahead of me before I can access my super, I'd discounted it as a useful strategy. However, I'm keen to revisit that now.

    Can you send me a copy of your SMSF ebook?

    Thanks

    Kevin.

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
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    Sure Kevin can you email me your email address.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of donavan1970donavan1970
    Member
    @donavan1970
    Join Date: 2012
    Post Count: 17

    Thanks again JacM,

    Sounds like Richard is the man I need to speak with, to get the ball rolling. He has sent me some information which I will read first.

    Thanks,

    Donavan

    Profile photo of HavinfunHavinfun
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    Richard,

    I am glad i read this post, i currently have all of the esuper material at home ready to sign and send back.

    i would like to purchase another property via a SMSF but have also been told that I cannot construct say a house and land package in the arrangement.

    I have been on the Esuper website whereby you are directed to a St George calculator and given the correct LVR,s of 72 % . IR of around 6.45%. But you are only able to apply via SG which is ok, as Esuper track all of your  transactions, for audit purposes.

    For zero outlay they seem ok and set up the SMSF quite well.

    I guess my underlying question is how are you able to purchase say a block of land, build, rent it out or sell under the SMSF legislation, especially when the ATO forbids it. I would suggest that the structures of trusts really come into play? If so I would love the run down on the structure, and if it works out replicate the same strategy.

    My other issue is that all of the lenders are quite quoy about their SMSF lending facilities, so I would be interested to see if the above rates are competiitve?

    I would also be interested in hearing of others strategy in SMSF real estate to gain the maximum leverage out of the system, as I only have around 150k invested in super, so I would like a strategy whereby i can gain at least a couple of properties.

    Regards

    Profile photo of RPIRPI
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    @rpi
    Join Date: 2012
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    SMSF is a highly regulated area, buying deeds off online providers is a scary process.  If an accountant, lawyer or someone else stuffs up, you have their insurance to help.  If you do it yourself you are on your own.  

    RPI | Certus Legal Group / PRO Town Planners
    http://www.certuslegal.com.au
    Email Me | Phone Me

    Property Lawyer & Town Planner

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