Think before using super on bricks and mortar
MUM and dad investors are now taking the plunge into selfmanaged super funds (SMSF) and buying residential property.
According to agents, just a few years ago the idea of buying property with super was unheard of.
Now, the suitability of a property to be part of an SMSF is frequently featured in print and online advertising.
That means it is recognised as a buyer demographic.
This is an interesting phenomenon because it is an extremely complex procedure.
The process was originally designed for the wealthy, with their private accountants and lawyers on hand to help guide them through the maze. But the masses have found out about it.
Now there is help, in so many forms, for the establishing of a SMSF. But this triggers a warning in the back of my mind.
As with all good things – and I do believe it is a good thing in principal – the government may decide to up the ante and make it even trickier or totally unobtainable for normal people, or start to tax the living daylights out of it.
But, right now, I suggest we keep our heads down, work the system and benefit.
What property to select for an SMSF and how to establish an SMSF is not an article but more a novel.
But I believe the act of creating an SMSF should have absolutely no links with who advises you, or how and what property you choose.
As with any new or latest property fad, companies pop up claiming to specialise in that sector of the market. This is absolutely no different to the ‘‘invest in property risk-free’’ schemes that made life so difficult for so many during the property boom. When you see a company offering a way through this legislative maze for free or cheaply, how tempting is that?
You need to ask ‘ what is the catch?’ because there will be one. The catch may be that they help you create an SMSF then find a property for you, too. How convenient.
But is it the right property, or is it a house on which they make a huge commission? To invest profitably in property in your SMSF, you need to adhere to some basic property investing principals.
This means the property type, location and entry price is vitally important, as is the rent you can expect. The numbers need to stack up – and the numbers will only stack up based on what you can afford, not on the package that someone wants to sell you.
This is not to say all of these schemes should be avoided completely.
I believe the advice on the SMSF and the advice on the property purchase should be treated separately.
The best way to go down this path is to create an SMSF using your own trusted, independent financial adviser.
Get advice from your accountant or the tax office; speak to your bank, a lawyer. All these professionals may and will charge you, but you know exactly what you are paying for.
It can cost several thousand dollars to create an SMSF.
But superannuation is all about your long-term financial security and it is vital it is handled correctly by true professionals.
For those with 10 to 20 years-plus of super, it could be well worth investigating.
And remember, property should only be part of the plan.
With superannuation – like all good investments – you should always be careful to spread your risk.