All Topics / General Property / SMSF property purchase

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  • Profile photo of wood12wood12
    Participant
    @wood12
    Join Date: 2010
    Post Count: 3

    All set to purchase a couple of properties with SMSF – around $600 each.

    What are your thoughts on the best type of property to purchase in VIC?

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

    Hi wood

    I presume you mean $600k each?

    A $600k property would need to be fetching around $800 per week in rent for the SMSF to stand on its own two feet… or you'd have to put in very large deposits.

    Can I ask how much is in your SMSF at the moment?  Might make it easier to answer the question of what'd be best for you to buy

    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 wood12wood12
    Participant
    @wood12
    Join Date: 2010
    Post Count: 3

    $600K each with $200K deposit each.

    $500k to invest in property in SMSF – the rest is shares

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

    Hi wood,

    You would not have to put in such a large deposit as you can get an 80% lend on smsf residential property.

    If it were me I would instead look at a few lower priced properties. Say four $300k properties with $60k deposits.

    With such a large startup fund your smsf could look at purchasing one house for cash in exchange for a hefty discount, and then put it under mortgage with a bank. You could repeat that again with property number 2 as well…

    Each purchase should still be done under a bare trust to allow the plan to work.

    Does this help you?

    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 Nigel KibelNigel Kibel
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    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    The whole purpose of a self managed super fund is to buy properties with the highest level of capital growth because at the end of the day it is the only way to build the value of a self managed fund. Generally a more expensive property will produce a higher level of capital growth. 

    Cash flow alone will not help in a self managed super fund and really for these funds capital growth is essensial

    Nigel Kibel | Property Know How
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    Profile photo of wood12wood12
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    @wood12
    Join Date: 2010
    Post Count: 3

    My thoughts were houses (not units) in suburbs around the Melbourne median – which was $550K in Dec 2012.

    Key factors in these suburbs: High private rental% vs Gvt rental; high weekly household income; growth over the past 5 years and within 10km of the CBD. In the North/Northwest – Yarraville, Seddon, Kingsville, Preston so far ……

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

    Hi Wood

    Won't comment on the individual suburbs as I am a Qlder thru and thru (although i am coming to Melbourne for a week early in March) however you need to remember that the key principal for any Trustee of a SMSF is to ensure that your investment choice adheres to the legislation and that is to provide retirement benefits to the members. 

    That is not say that purchasing a property that has good capital growth prospects will fail to meet the investment objectives of the Deed however the SISA legislation also places an emphasis on income.

    As a Financial Planner and Superannuation specialist i see many investors make investing decisions that do not comply with the current legislation. This of course does not mean a well located residential property with good cash flow will fail the purpose test however care does need to be taken.

    Buying 2 properties in your fund you probably want to look at the loan structure to ensure that the SMSF does not end up footing the bill for any cash flow shortfall and be reliant on employer / employee contributions.

    Cheers

    Yours in Finance

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

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Nigel KibelNigel Kibel
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    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    I agree with Richard, however rather than buy houses I think you are better off in higher growth areas with perhaps a townhouse 

    Nigel Kibel | Property Know How
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    Profile photo of Y-StressY-Stress
    Member
    @y-stress
    Join Date: 2013
    Post Count: 7

    You may want to have 2 SMSF's so that each SMSF owns a separate property, this may be useful if you want to reduce the land tax liability on owning each property

    http://www.ystress.com.au

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539
    Y-Stress wrote:
    You may want to have 2 SMSF's so that each SMSF owns a separate property, this may be useful if you want to reduce the land tax liability on owning each property

    http://www.ystress.com.au

    A new SMSF per property?  The annual accounting and ASIC fees would negate what you are trying to achieve in saving on land tax. 

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

    Sorry Y Stress

    Why oh why would you set up 2 SMSF's with the set up costs, Annual compliance & Audit costs involved.

    Sorry but as a SMSF specialist i simply cannot agree with the advice you have offered.

    Land Tax is a small expense when it comes to the overall running of an longer term investment.

    Jac's idea of spreading your investment over a mix of cash flow and capital growth properties makes far more sense.

    Remember you can not draw a pension on capital growth alone.

    Cheers

    Your in Finance

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

    100% Investment Finance now available on selected properties. Email us for further information.

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

    We are trying to make it cheaper to run your own SMSF so that the cost of having a SMSF is more affordable

    http://www.ystress.com.au

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

    Sorry Y-Stress but your idea of setting up one SMSF per property does not save people money.  It actually costs people more money.  As Qlds007 has already pointed out, land tax pales in comparison to the annual fees associated with running a SMSF.  ASIC does not offer discounts.  You cannot avoid annual ASIC costs, and you cannot avoid the requirement for annual accounting and audit, which has associated fees. 

    Let's say someone aspires to have three identical properties in Super.  Let's say each one has a land value of $100k.

    Scenario 1:  One SMSF.  This SMSF has three properties in it… each one held inside a bare trust.  Total Land Value : $300k.

    Annual ASIC fee, SMSF : $43

    Annual ASIC fee, Bare Trust 1 : $230

    Annual ASIC fee, Bare Trust 2 : $230

    Annual ASIC fee, Bare Trust 3 : $230

    Annual Accounting and Audit : $660 (depending on how good your record keeping is, how complex your SMSF tax return is and what your accountant charges)

    Land Tax : $375

    Total annual costs : $1108.

    Scenario 2:  Three SMSFs.  Each has one house, with its own bare trust.  Land value of each house is $100k which is below the land tax threshold.  Each SMSF must do a tax return and audit each year.

    Annual ASIC fee, SMSF 1 : $43

    Annual ASIC fee, SMSF 2 : $43

    Annual ASIC fee, SMSF 3 : $43

    Annual ASIC fee, Bare Trust 1 : $230

    Annual ASIC fee, Bare Trust 2 : $230

    Annual ASIC fee, Bare Trust 3 : $230

    Annual Accounting and Audit, SMSF 1 : $660

    Annual Accounting and Audit, SMSF 2 : $660

    Annual Accounting and Audit, SMSF 3 : $660

    Land Tax : $0 (because the tax-free threshold in VIC is $250k of land value)

    Total annual costs : $2799

    These are the associated fees I have seen based on running my SMSF.   As can be seen by the total costs figures, it makes absolutely no sense opening a new SMSF per property.  It costs more.  It also creates more paperwork and admin.  It should further be noted that if someone's record-keeping skills are not great, the annual accounting and audit fee gets bigger, and thus the total cost of running three smsfs rather than one becomes substantially bigger.

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

    There are a couple of other costs that Jac M has included and these include:

    1) 2 x Audit fees

    2) 2 x Bank Audit fees for confirming the interest statement etc

    3) The Accounting fees will be a little higher than $660.

    We put out clients thru a couple of companies and you can add an extra $1000 to that figure minimum.

    See can't see why anyone would set up 2 funds but i am sure we will find out from Y Stress.

    Cheers

    Yours in Finance

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

    100% Investment Finance now available on selected properties. Email us for further information.

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

    You need to see the land values for each property to decide if it is worth setting up 2 SMSF's. The other benefits in setting up 2 SMSFs are estate planning opportunities which can save your family a considerable amount in the future.

    http://www.ystress.com.au

    Profile photo of Anthony KAnthony K
    Participant
    @anthony-k
    Join Date: 2010
    Post Count: 56

    Anthony K

    Hi ystress and All

    I agree setting up more than one fund is more expensive, I prefer this idea.

    Use a single SMSF and bare Trust and have two separate loans.

    This means that you only need two companies, a SPTC and a standard co. for the holding trust.

    Asic fees on setup $433.00 each, and on Annual Review $43.00 + $230.

    Now you are all going to tell me that it cannot be done, but:

    Walter Bagehot, a British businessman, essayist and journalist, said:

    “a great pleasure in life is doing what people say you cannot do”

    Of course my fees for advising and explaining how to execute this will be added to the set up costs but you will save money on the extra set up costs and compliance costs every year.

    How you proceed is up to you ystress.

    On a different tack, here’s part of an article I wrote 2 years back for beginner home buyers perhaps some forum followers would like to read the rest?

    YOUR FIRST 141 HOME LOAN PAYMENTS ™ (Part 1) November 2011.

    Why such a strange title ?

    Because it highlights one of the most fundamental and important pieces of information that the majority of home buyers never discover or even think about. So what is it ? and why is it such a secret ?. 

    It's this. 

    Depending on the interest rate and your home loan borrowing term, it's the point at which the monthly repayments you have made are equal to the loan amount you originally borrowed.

    For borrowers who have a 25 year principal and interest mortgage, it occurs about the time they have made 141 loan re-payments, that is, it occurs at about eleven years and nine months (141 months). But even though this is an interesting fact it is not the most important fact about your home loan costs.

    The real killer fact is this:

    Every payment you make after number 141 is a financial loss for you, because you still have 159 payments to make on a 25 year loan term. This allows us to calculate your loan loss ratio as follows. Divide the number of remaining payments by those already made, i.e. 159/141 = 1.13. This means that your home loan costs you 213% times the loan amount borrowed. It is also the reason that for most home buyers the banks have them in their power for most of their working life including the time spent saving your home deposit.

    Regards to All

    Anthony K

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