All Topics / Help Needed! / SMSF is it worthwile?

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  • Profile photo of Newcastle KnightNewcastle Knight
    Member
    @newcastle-knight
    Join Date: 2012
    Post Count: 27

        Hi everyone

           I am putting it out there about SMSF's to actually see if they are a worthwhile way of investing in property or are they a waste of time? I have actually just gone through the process of rolling over my super into my own SMSF and I am now finding out that is going to be a lot harder than I thought it was going to be to make as much or more money in the long run than what my super would have done just sitting there with Australian Super. If anyone has any advice or tips on things like price range, tax breaks, what I can claim etc and how it is taxed orthings to look for or look out for it would be most appreciated,

           regards Troy

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    The superfund can get the usual tax breaks. Any loss can be used to reduce hte tax paid by the fund, albeit just 15%. This could mean you fund may not have to pay income tax which can assist in stretching things further.

    Once you have found a property and paid the 20% deposit the thing should almost fund itself. You can then use the offset account to accumulate more funds such as the compulsory 9% SG put in by your employer. This will save even more interest and allow you to build up a deposit for the next one quicker.

    Or you could get one property and then invest in shares with 100% franked dividends. This would be very tax effective if the fund had $0 taxable income as the franking credits would mean the fund would get a lot of tax back.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi Troy,

    The beauty of acquiring property inside a Smsf is the ability to leverage ( ie borrow money ). You swap your deposit, stamp duty and a few buying costs for a whole house which tenants then pay off for you. You would need to look at properties yielding above 6% for it to work, and you need low vacancy rates and good capital growth. If you have already set up your smsf I suspect you already know these things and are maybe nervous taking the next Sep? Maybe you don’t know anyone who has trodden this ground before you. If you need a sounding board or kick in the pants shoot me a PM. I’ve trodden the ground and have a very clear vision of the path I will drive my smsf down.

    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 Rick staRick sta
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    @rick-sta
    Join Date: 2011
    Post Count: 120

    Remember it's not only about beating the return from your existing fund.  It's also about having full control of the fund and using that to your advantage.  And don't forget the benefits of tax deferral on contributions.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    SMSF is fantastic and extremely popular however be very careful about putting 'all your eggs in the one basket'. Some of the pros has been listed above – some of the cons include set up costs associated with lending and accounting. You will need to have approx 25% deposit which means higher than ordinary deposit funds required, you cannot borrow to renovate (however I hear through the grapevine that a lender is somehow about to change this and flip it on its head). 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of Made_ManMade_Man
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    @made_man
    Join Date: 2013
    Post Count: 35

    You have to tell us which bank now that you have everyone listening.

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

    Hi Steve

    Matter of watch this space but don't get too excited quite yet. 

    Went to a SMSF seminar earlier in the week ran by my Financial Planning Licensee where there was an ATO representative discussing their overview on SMSF and the increased amount of borrowings they are seeing coming thru.

    At the moment their are adopting a watch and see attitude however it wouldn't take much abuse by certain lenders for tighter controls to be implemented.

    I own a fair number of properties inside my SMSF but purchased them prior to 2007 so the current legislation certainly gives investors an opportunity to expand their portfolio with the current 80% lvr's being offered.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Newcastle KnightNewcastle Knight
    Member
    @newcastle-knight
    Join Date: 2012
    Post Count: 27

         Hi Guys,

     Thank you very much for taking the time to comment on the above topic. Any advice (good or bad) received is gold in my eyes to help make decisions. I feel out of my depths on here sometimes, however once I take that 1st step and buy a property I will hopefully be on the way to financial freedom. I am by no means greedy and don't want to own a thousand houses, but I do want to work towards a relatively stress free retirement which will hopefully see a nice passive income coming in each week to live off and set my kids up once my wife and I finally do go.

       Cheers Troy

    PS JacM I might just take you up on the offer of the PM

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    Hi Steve,

    I can't say which lender it is as it was an off the record conversation but they are putting something out within the next 2-3 months. 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of taxdivataxdiva
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    @taxdiva
    Join Date: 2011
    Post Count: 25

    Very excited to hear SMSF is being reviewed and lending being revisited. Just settled our first place in our SMSF. IMO get the right experts around you. People and companies you trust who will support and facilitate your wealth creation. I really so no future for retail funds giving us 4-5% on a good year then taking their share of fees. Give me rental income and modest capital gains. My accountant feels SMSF's will drive the next real estate boom!

    Profile photo of Y-StressY-Stress
    Member
    @y-stress
    Join Date: 2013
    Post Count: 7

    It is becoming easier to manage your own SMSF and if your bank is being difficult in lending money to your SMSF then you can always use your personal savings to lend money to your SMSF and acquire property in your SMSF. You have abundant flexibility in maximising your personal benefits.

    Y-Stress?

    http://www.ystress.com.au

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

    Hate to say Y not quite as easy as that.

    If with a Related Party loan you need to lend to hold the Asset in the Bare Trust and the loan needs to be documented.

    The only reason why the Bank would be difficult is if serviceability was not evident or the security was unacceptable and

    a both matters would need to be considered in RP lending.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Adrian 00Adrian 00
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    @adrian-00
    Join Date: 2013
    Post Count: 10
    Profile photo of gmh454gmh454
    Member
    @gmh454
    Join Date: 2003
    Post Count: 537
    taxdiva wrote:

    My accountant feels SMSF's will drive the next real estate boom!

    or maybe SMSF investing in property will drive the next accountants boom

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539
    taxdiva wrote:
    My accountant feels SMSF's will drive the next real estate boom!

    Maybe, but there'll be more rentals on the market which will eventually cause a tweak in the supply and demand of rentals and may result in the need to decrease rental prices or not hike them quite so much each year.  For people that get on the SMSF bandwagon early and have owned the properties for a few years already it won't matter so much.  For the latecomers, I think it will be slower to make awesome progress.

    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 andrew candrew c
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    @andrew-c
    Join Date: 2012
    Post Count: 1

    Hi Steve

    What percentage of my super fund can you use to invest in property? If you have less than $100,000 would it be more beneficial to outright purchase property in the US as it is positive cash flow and low entry price?  

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    The beauty of buying property in super is leverage.  Borrowing to buy an asset worth more money than you actually have, and then letting tenants pay it off.

    $65k is enough to open a smsf and buy its first house (paying deposit, stamp duty etc).  The next one you'd need a little less (about $58k) because you would not be "setting up the smsf".  just buying the second property.  I'm talking about properties with acquisition prices of around $230k.

    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 acurabotacurabot
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    @acurabot
    Join Date: 2013
    Post Count: 22

    Hi guys,

    I'm trying to figure this all out myself. What I'm having trouble finding information on is whether I'd be able to access the positive cashflow now or would I have to wait for retirement? What if I improve the property using my own money i.e. not out of the SMSF, where would the profits go when sold?

    Thanks.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    Hi acurabot

    The short answer is no you cannot get profits out of a SMSF before retirement. 

    Also a SMSF cannot borrow money to make improvements to a property.  Even if the borrowings come from you yourself.  So if you gave your smsf money to renovate, it'd be just that.  A donation.  And the profits would belong to the SMSF when the property is sold.

    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 TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    JacM wrote:
    Hi acurabot

    The short answer is no you cannot get profits out of a SMSF before retirement. 

    Also a SMSF cannot borrow money to make improvements to a property.  Even if the borrowings come from you yourself.  So if you gave your smsf money to renovate, it'd be just that.  A donation.  And the profits would belong to the SMSF when the property is sold.

    Bit more tricky tjan thst Jac.

    A smsf could borrow from a member to reno but could use tje priperty as security.

    And it wouldnt be a donation but anything put intp the smsf could be a contribution. If this takes one over the contribution caps it could have serious tax consequences.

    Sorry for the spelling. Just travelling from laos to thailanf via car.

    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

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