Forums / Property Investing / Help Needed! / SMSF Property or Shares

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  • Profile photo of sam2011sam2011
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    @sam2011
    Join Date: 2010
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    My wife and i have around 100k in super and income of around 200k.  I have been speaking with a SMSF adviser about property and he has just got back to me saying my borrowing capacity is $350k inc costs.  Also i have been advised that flipping properties is not a strategy you can implement in SMSF…and even with minor renovations you need to be wary….is this all true?

    Now i am wondering if i am better off just putting the money into shares.

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    Purchasing property via your SMSF is fantastic and it is become more and more mainstream and common.

    It has also become considerably cheaper than say 2 years ago.

    Having said that – please get specific advice and be careful that you do not have the same asset class for all your investments. 

    TheFinanceShop | Elite Property Finance
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    Profile photo of Josh AthertonJosh Atherton
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    @josh-atherton
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    Hi Sam, 

    holding property in your SMSF is designed to allow an investor diversify their assets for retirement. Putting all of your eggs in one basket defeats this purpose. However, many people still choose to do it. You will need to ensure you have a very thorough understanding of property and your investment strategy.

    Also, it will depend on what you plan to contribute to the SMSF from your salary as you may be planning to increase it a bit? 

    Look for property that is higher yielding in your SMSF as interest rates are higher using a LRBA. 

    With flipping, you can do it. You are restricted when it comes to borrowing for renovations etc, or even renovating a borrowed asset in some cases. You need to be careful not to change the 'use' of the property. Also, you must purchase a 'single acquirable asset' to meet regulations. You are also limited when it comes redrawing on equity for capital growth, this cant happen. 

    Hope this helps

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    What's not to love about investing in property in a SMSF?  Since your SMSF only has to fork out for 20% deposit, stamp duty, solicitor, bare trust setup and mortgage setup fees, you can essentially swap a pile of money for an asset worth four times its value (eg swap $60k for a property worth around $240k) and then the tenants pay it off.  Meanwhile the property, all going well, also goes up in value each year also.  Even if it didn't, may I point out that simply the act of buying it and deciding to let the tenants pay it off has multiplied your money by 4.  That's a 400% return.  Show me a retail fund that can assure you that it can produce such a return. 

    Of course you can flip property.  Remember to factor in the CGT (which is lower in super anyway).  Just be a bit careful of how often you flip.  Wouldn't want the ATO thinking your SMSF is running a business.

    My favourite topic last year was acquiring property inside a SMSF.  It's also my favourite topic this year.  I wonder why?    smiley

    Jacqui Middleton | Middleton Buyers Advocates
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    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Have to agree with what the others have said. Borrowing in Super is my favourite past time.

    I started my own SMSF in 1995 with $60K and now it has over $4.3M in a variety of asset classes including a number of propertied which unfortunately I had to pay cash for as they were purchased pre Sept 2007.

    Flipping is certainly allowable inside a SMSF however the set up costs may in road into your profit and you would not enjoy the 10% CGT concessionary rate if the asset is held for less than 1 Year.

    If you intended to consider that you may want to look at a Related Party Loan where you could lend money to the Super Fund at a cheaper rate.

    Maybe borrow it personally at say 5.5% and lend it out at 4.5% claiming the Tax loss in your own name.

    This is only one strategy we work thru with clients looking at starting their SMSF portfolios.

    In saying this remember the goal with investing in Superannuation is to provide retirement benefits for the members and therefore your choice of property should cater for this.

    We work with forum investors all day long setting up SMSF's structures for them and then buying a property tailored to their goals.

    Don't try and make it a quick fix but use gearing to your advantedge to build up the pot of gold which you can enjoy in later life.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of TerrywTerryw
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    Qlds007 wrote:
    If you intended to consider that you may want to look at a Related Party Loan where you could lend money to the Super Fund at a cheaper rate.

    Maybe borrow it personally at say 5.5% and lend it out at 4.5% claiming the Tax loss in your own name.

    Richard, Lending at a loss? This would not be allowable because it is not a commercial transaction.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
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    Profile photo of Richard TaylorRichard Taylor
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    Hi Terry

    Never like to disagree with you as you know but might have to to so on this one.

    http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2010162/00001

    We have done a number of deals for clients this way thru a couple of leading Accountants in Brisbane and never had it raised. 

    Several of the clients have been fully audited without issue.

    Easier where you work in an offset account to the mix.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of sam2011sam2011
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    @sam2011
    Join Date: 2010
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    insights fantastic as usual!

    One point i am still struggling with is not being able to borrow against a property in SMSF, I see this as limiting your growth opportunities.  Would you recommend buying a place, creating an offset account and putting any additional funds into that account so that it can be used to purchase another property down the line?

    Thanks

    Sam

    Profile photo of TerrywTerryw
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    Qlds007 wrote:
    Hi Terry

    Never like to disagree with you as you know but might have to to so on this one.

    http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2010162/00001

    We have done a number of deals for clients this way thru a couple of leading Accountants in Brisbane and never had it raised. 

    Several of the clients have been fully audited without issue.

    Easier where you work in an offset account to the mix.

    Cheers

    Yours in Finance

    Hi Richard,

    I agree a related party can lend to a SMSF at lower rates than commercial rates. The ATO ID you refer says this, but this is only for the SIS Act. It doesn’t cover someone borrowing and onlending to a SMSF at x and onlending at y – where y is less than x. This doesn’t make commercial sense and the individual would only be able to claim interest to the extent of the income they receive. ie they couldn’t claim a loss.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Profile photo of GrantMckGrantMck
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    HI Sam,

    With your Superannuation amount to date being $60k, and using this to purchase a property in a SMSF should be approached with some caution. It is being discussed by many in the SMSF industry that the ATO and ASIC have an interest in SMSF's being set up to solely invest in property without any other diversification within the fund. The other costs that people do not think about is the Insurances needed in a SMSF, especially if there are between 2-4 members. (4 is the maximum). If there is say 2 members in the SMSF and one of these members unfortunately passes away, and there is no insurance in place, there is every chance that the property will need to be sold. Insurances provide a SMSF liquidity and can be paid from the SMSF.

    In saying this, a SMSF is a great opportunity to manage your investments for Retirement. I have attached a number of links from the ATO to hopefully help you to understand what is involved in a SMSF.

    http://www.ato.gov.au/content/downloads/spr00182491n72579.pdf

    http://www.ato.gov.au/content/downloads/spr00162377n71454.pdf

    http://www.ato.gov.au/content/downloads/spr46427n11032.pdf

    http://www.ato.gov.au/content/downloads/spr00182478n71923.pdf

    http://www.ato.gov.au/content/downloads/SPR00352279.pdf

    Regards Grant

    Profile photo of sam2011sam2011
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    @sam2011
    Join Date: 2010
    Post Count: 123

    thanks Grant.  We have 100k in super.

    the links you provided dont work…looks like ATO has changed its site and not linked pages correctly

    Profile photo of GrantMckGrantMck
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    @grantmck
    Join Date: 2013
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    HI Sam,

    My apologies on the Superannuation amount. I have attached another link that may help, I could not access the docs on the ATO website either.

    http://www.macquarie.com.au/dafiles/Internet/mgl/au/docs-pa/articles/smsf-from-set-up-to-wind-up.pdf

    Regards Grant

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