All Topics / General Property / Use of SMSF to buy Property outright

Viewing 13 posts - 1 through 13 (of 13 total)
  • Profile photo of JDLJDL
    Participant
    @jdl1
    Join Date: 2015
    Post Count: 3

    Hi, I am looking at a new Financial Advising service and they are pushing hard to use almost half of my superannuation fund to buy a property in full, to provide a safe return and capital growth for the future. I am 62, so there I am close to approaching the need for retirement income. They give an expectation of around 3% income return on the property?

    Is this a logical way to invest my super fund at a time I approach retirement and will be looking for income? Appreciate any advice or input please?

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

    I bet they happen to be selling the property too and/or earning a decent (indecent) commission. It is not a good idea. I suggest you report them to ASIC.

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

    Profile photo of ScottScott
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    @scotty-t
    Join Date: 2014
    Post Count: 9

    JDL,

    In terms of investing in anything, whether it be property, shares, term deposits etc, whether it’s inside or outside of super, you need to evaluate each invest on its merits, i.e. is what you are investing in going to give you a suitable return compared to your initial investment.

    The next thing you need to ask yourself, is does the person who is telling you to invest your money in a certain asset have a vested interest? i.e. Is there advice influenced by what they may receive by you investing your money in a particular asset. As Terry alludes to, the financial adviser may receive a commission/ fee for getting you to buy a particular property, hence their advice is biased. Are they pushing you to buy a certain property? If they are, that would set off alarm bells in my mind.

    If you are unsure, i would definitely seek a second opinion.

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

    Agree with Terry i am not sure why you would pay cash for the property that was only yielding 3% Gross.

    Personally would look at some gearing with a 100% offset account and you couldn’t go far wrong.

    At least it gives you some form of choice.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    100% Investment Finance now available on selected properties. Email us for further information.

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

    As Terry and Richard have said, there isn’t sound logic to this advice. An income-producing asset that produces only 3% per annum is very low return. Perhaps the property will grow in value, perhaps it won’t. If it does then in theory if you need to sell it one day you could crystalize your gain by selling it and live off the cash pile till it runs out. Leverage (borrowing) is powerful in that it doesn’t lock up all your cash but instead uses someone else’s, while you in theory enjoy the capital gains for a while.

    It’s hard/impossible to know whether one strategy over another would cripple you financially or just put a tiny dent in your extravagant retirement lifestyle without knowing more about your overall position.

    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 TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Your super is probably in a retail fund now making 8% return too. They would want to charge you a fortune to set up a SMSF, take out your money, cut your earnings in half, invest you in a property that decreases in value and recommend their own inhouse accountants charging double normal rates.

    Your super would probably make better returns invested in savings account.

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

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

    As Terry indicates, if they are pushing hard then what’s in it for them is probably substantial, and not necessarily in a strategy that is best for you.

    If you are able to comment more on your overall position, we might be able to say something more useful.

    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 JDLJDL
    Participant
    @jdl1
    Join Date: 2015
    Post Count: 3

    Hi Everyone,
    Thank you all for your input and comments. One of my main reasons for getting into this forum, is that I have found it very hard to get any ‘independent’ source to get feedback or recommendations! Everyone wants a slice of the cake! I did speak with an Industry fund, as you say it returns around 7-8% and it seems ‘safe’? The firm I am dealing with keep saying how shares can go to zero value, whereas property cannot never go to a zero value and every likelihood it will increase. But as already said any increase in capital growth is only as good as when you sell it?? I am still uncertain which way to turn. I know today I pay far too much or a Financial Advisor, the Industry Fund seems the ay to go, I am just not comfortable with the SMSF still?? The pitch from these guys is any super fund over $500k makes perfect sens to be in a SMSF? Any thoughts or comments??

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

    If you have $500k in super then it would make more sense to set up SMSF – generally. This is because when you look at all the fees in the industry fund they will add up. It may cost less than $2000 pa to run your superfund. But you will have much more control and many more strategies at your disposal. Imagine you were to die now, it would be the trustee of the industry fund that decides where your super can go. At least with a SMSF you can plan ahead.

    Just don’t invest in property directly through a sales person.

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

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

    Profile photo of JDLJDL
    Participant
    @jdl1
    Join Date: 2015
    Post Count: 3

    Thanks Terry,
    I guess that is my dilemma, that these people want to put about 50% of my super fund into a property investment, with their expectations of around 3% income, under a SMSF. Which they say is somewhat guaranteed given it is property not shares! I think this is very low at a time when there is a better returns out there! I get the overall opinion that to invest a SMSF in property to pay full value from my fund for such a low return is not warranted? Thank you all, that gives me other inputs and opinions, I do appreciate yr time and comments.

    Profile photo of tanner892tanner892
    Participant
    @tanner892
    Join Date: 2013
    Post Count: 25

    To be frank, I wouldn’t be going into an SMSF unless you are very comfortable with the superannuation laws, your obligations and generating your own returns.

    Look for another financial advisor.

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

    They are actually breaching the Corporations Act by doing this. You should put them into ASIC to help prevent others falling into the trap.

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

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

    Profile photo of RedwoodRedwood
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    @redwood
    Join Date: 2013
    Post Count: 340

    Hi, I am looking at a new Financial Advising service and they are pushing hard to use almost half of my superannuation fund to buy a property in full, to provide a safe return and capital growth for the future. I am 62, so there I am close to approaching the need for retirement income. They give an expectation of around 3% income return on the property?

    Is this a logical way to invest my super fund at a time I approach retirement and will be looking for income? Appreciate any advice or input please?

    Hi JDL – A SMSF property should provide a 4.5% yield to be viable for resi property with a borrowing (but you mention buying property in full) – anything less is a no-go (in my opinion).

    You should have a diversified portfolio yes – but there a number of considerations to determine the right property, a 3% yield is a key indicator that the property is not right.

    Re retirement – strategy is king – Transition to retirement is important to consider to maximise tax benefits, take your time, seek a different opinion that the voice provided, SMSFs aint for everybody and using the vehicle will require significant understanding of superannuation law or a independent advisor/ accountant to assist you on your journey.

    In summary – go elsewhere. Be free to google the firm you are seeing and add the word ‘scam’ see if anything pops up …

    Cheers Ivan

    Redwood | REDWOOD | SMSF | PROPERTY | FINANCE
    http://redwoodadvisory.com.au
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    SMSF - PROPERTY INVESTMENT - WEALTH CREATION AND FINANCE SOLUTIONS

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