Investing in property – a super idea

Australian workers have watched world share markets ride a hair raising roller coaster of ups and downs for some time now.

Thousands lost large chunks of their retirement nest eggs during the 2008 Global Financial Crisis and more recently, as the European markets teeter on the brink of uncertainty, many are concerned as to how their savings, shares and super funds will weather this new economic storm.

The one thing these significant changes to the global economic climate have highlighted is that we cannot afford to be complacent about where we stash our hard earned cash for the future.

Rather, it is up to each individual to work out the most secure, stable and effective investment vehicle for their individual needs and then pro-actively build a wealth-generating portfolio, whether it is based on shares or real estate.

My personal preference is for the latter, largely due to the fact that housing has proven itself to be less volatile than shares over time and as such, the banks are much happier to lend you more for property than to dabble in the stock market.

With wild swings in share prices over the past twenty or thirty years causing many to question their reliability when it comes to long term wealth creation, an increasing number of Australians are recognizing the comparative stability and income producing potential of our local, inner city property markets.

Combine our growing interest in bricks and mortar with the tax office changing superannuation regulations back in 2007 so that people can borrow within their own, self managed super funds, and real estate is not surprisingly becoming an increasingly popular super fund cash cow.

In fact recent data from the ATO indicates a 50 per cent increase in property investment activity within SMSF’s since June 2008, and a significant jump of 13 per cent in the past year alone.

Now, not only can you borrow up to 70 per cent (under certain circumstances even up to 80%) of a property’s value to invest in within your SMSF, you can also seek extra funds to make improvements on the residential properties in your SMSF (with some conditions of course and with special emphasis on repair and maintenaince versus improvements).

More Australians are recognizing the benefits of property as a strong, stable asset base for their super funds, given its ability to generate excellent returns and capital gains over the long term.

That being said, this strategy is not something you can simply run with, unless you have the financial capacity within your super fund and have received good, independent advice from a properly qualified financial planner.

So what are the main advantages and disadvantages of taking this tact when it comes to building your own retirement nest egg?

The good

• Control – you have complete control over your SMSF rather than entrusting your future financial wellbeing to a complete stranger, who will take your hard earned cash and invest it in shares and managed funds that may or may not perform.

• Tax savings – If you buy and hold the property within your fund until you retire and your super goes into the pension phase, you will be exempt from paying either capital gains tax if you sell the investment, or income tax on any rental income should you decide to hang onto it. Before you retire, any capital gains or rental income generated by your SMSF are taxed at a rate of 15 per cent, or 10 per cent CGT is applicable if you hold onto the property for over a year.

• You will have a diversified super portfolio that is not reliant on just one investment vehicle, meaning you will have better financial security for the future.

The bad

• The cost! This can add up to tens of thousands of dollars in establishment costs and sometimes there will be higher fees involved in borrowing to buy property through your SMSF.

• The confusion. There’s no denying that managing your own super fund can be a minefield of complicated rules and regulations. Get something wrong and you could end up paying hefty penalties. Of course, you can pay a professional to manage it on your behalf and this is something I would strongly advise anyone with a SMSF to do – whether they’re buying real estate or not!

• You have to have the cash to do it. This is not a strategy for someone with a small amount of cash in his or her super fund.

Basically, unless you have $170,000 or more available funds in your SMSF and are still contributing to your SMSF, the banks may not be willing to lend money to your SMSF.

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Rolf Schaefer


Rolf is Director of Metropole Finance and has twice been voted Australia's leading finance broker. He shares his wealth of knowledge about how to best use property finance to fund investments.
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'Investing in property – a super idea' have 7 comments


    January 22, 2014 Home Page

    You’ve got awesome knowlwdge in this case.


    Michael Yardney

    October 27, 2012 Michael Yardney

    I believe Rolf is getting at the fact that you’d be borrowing at a 70% LVR and need to fund acquisition costs as well.
    PLus you should leave yourself some buffers in your SMSF – just in case. With this type of deposit you’de be able to buy a property in the $400 thousands



    October 27, 2012 Darren Anderson

    I am interested to know what the $170K figure is based on? What purchasing power would I have with $160K?



    October 27, 2012 Kevin

    if you are holding a number of investment properties accumulated over the years in the names of you and your spouse, which is the best way to transfer those into a SMSF, or is that even possible without major penalties or costs? Is it even desirable under such circumstances as you get closer to considering retiring?


      Michael Yardney

      October 27, 2012 Michael Yardney

      In general your SMSF cannot buy assets from you. The exception is commercial property from which you conduct your business



    October 26, 2012 Gary

    What is the $170,000 minimum based on – purchase price of $850K? Thanks



    October 12, 2012 Sharemarket College

    Wow, what a fantastic idea it is! I am a Property consultant and I will follow these tips in my profession.


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