Buy Property in SMSF or Put into HostPlus Index Fund

Discussion in 'Superannuation, SMSF & Personal Insurance' started by robs132, 10th Dec, 2017.

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  1. robs132

    robs132 Active Member

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    Hey,

    We have $170K in an SMSF and close to purchasing a property from within the SMSF.

    The other option is to put the $170K into hostplus indexed balanced fund.

    We are both 35 and can make maximum super contributions (i.e. $50K a year).

    We have 2 IPs and looking to purchase another in the next few months.

    Should we put our super into Hostplus index fund in interest of diversification or should we purchase another property in our SMSF that we can likely pay off in 7-9 years and use that as our main strategy?

    Just concerned about diversifying our portfolio.

    Any guidance / recommendations appreciated.

    Also any strategists / planners you could recommend?

    Thanks!

    Rob
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Imprecise wording - the SMSF trusts is considering purchasing property or you purchasing from the SMSF? Sounds like the first - the SMSF will purchase property.

    I cannot legally answer your question, but

    Consider the following
    - SMSF could later sell any shares it owns and buy a property
    - SMSF purchasing property now will mean personal guarantees from members and this will effect future borrowing ability of those members for loans outside of super.
    - SMSF cannot tap into equity of a property once borrowed for, so one strategy is not to pay off the loan faster than necessary, but to keep cash in a SMSF offset. The offset cash could possibly be later used as deposit on another property inside the SMSF.
     
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  3. robs132

    robs132 Active Member

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    Thanks Terry :)

    Trying to toss up whether to go "all in" on property i.e. have both Super and personal heavily invested in this OR have super in index fund and personal strategy in property.

    Is there a planner / strategist that someone can recommend me to speak with so that I can pull together a proper plan?

    Thanks!

    Rob
     
  4. Big Will

    Big Will Well-Known Member

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    How diversified would your whole portfolio be with it being 'all in' property?

    If property does well then great but if property does poorly then not so great.

    For us we are a couple of years younger than you but prefer property outside super due to restraints and shares inside super.

    This gives us diversification and backing both horses... Shares are still a great way to make money last 12 months overall we have had a return of 12.77% worst performer was 0.68% return and best was 49.51% (was higher a couple of days ago).

    Yes if we put it all on the 50% share we would be laughing but we would be crying if it was all on the 0.68% return. Same with being all in on property if it booms 20% in a year you are happy but if it drops by 10% you are crying.
     
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  5. Al1979

    Al1979 Well-Known Member

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    I am far from an expert Rob but I had to make a similar decision around two years ago. I decided to stick with Hostplus for super as a small way of diversifying. We have large exposure to property personally but not much exposure to shares so I figured this was the best way to go.
     
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  6. Scott No Mates

    Scott No Mates Well-Known Member

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    I concur with the reasoning however my fund also has a % exposure to direct commercial property, commercial property development & infrastructure - exposure to A grade investments which I could not afford outright.
     
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  7. robs132

    robs132 Active Member

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    Yeah I feel that diversification into index fund is the way to go and then also closing down the SMSF.

    At the moment the costs of running the SMSF are around $2k a year I guess. Hostplus would be more economical.

    Plus pulling money out of the $170k to pay for stamp duty on a property when that could be directly invested into index seems like a waste of cash.
     
  8. Big Will

    Big Will Well-Known Member

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    For some reason it wouldn't let me load Hostplus website but I got rate city.

    HOSTPLUS Superannuation Fund | Superannuation | RateCity.com.au

    They say for 50k the total fees are $803 so if you use this number for 170k that would equal fees of $2,730.20 - seems high.

    From the fine print of fees on the website
    1.01% investment fee = $1,717 (on the 170k amount)
    + $78 admin fee

    Total $1,795 - unsure where the extra rate city found but I am not doing all your DD :)

    So it is pretty much the same fees.

    Even if my number was current at approx. $1,800 and you are currently spending $2,000 you would only need a couple more (approx. 20k) to be viable to use the SMSF. If you didn't have one setup then you could wait perhaps however you already have one so maintaining it would likely be more efficient longer term than closing it down now and in 1-3 years times creating it again.

    The SMSF also gives you great control and flexibility but it is all on you :).

    As a side note the graph on ratecity looks very complimentary to them.

    upload_2017-12-11_13-28-34.png

    If you use the actual % this is how it should look

    upload_2017-12-11_13-29-6.png
     
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  9. robs132

    robs132 Active Member

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    Thanks Will. Apparently the index fund is the lowest cost fund in Australia.

    Correct me if my maths is wrong here but they say:

    The investment management fee is only 0.015%pa, down from 0.02%. The administration cost of a flat $1.50 a week ($78pa) is unchanged since 2004. Hostplus stands out among funds, many of which now also charge an asset-based administration fee: commendably it has retained the fixed amount.

    I got this result by searching for their PSD 'hostplus indexed balanced fund fee'

    So on $170k they would charge $25.49pa to manage plus $78pa admin fees. Seems really low... but that is the maths unless it is wrong.
     
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  10. Big Will

    Big Will Well-Known Member

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    I am guessing you are reading the Money magazine article in which case comparing the 5 year return on this fund (9.02% p.a.) vs their normal super return mentioned above (11.76%).

    Article here - https://hostplus.com.au/-/media/Files/Hostplus/Documents/MM1216Lowest-costbalancedSuper.pdf?la=en

    upload_2017-12-12_9-28-27.png

    For the 5 years return this is how they compare

    upload_2017-12-12_9-33-40.png

    or a $33,754.12 difference, okay we haven't included fees but even if you were to pay them the 2.7k fees mentioned above (5 years is $13,651) - FYI using simple interest but lets round it to $15,000 or better off by $18,754.12 - likely more as I haven't included their $88 per 50k fee so would be roughly about $20,000 better off in 5 years using their 'higher cost' version.

    Note past performance is no guarantee on future performance.
     
  11. See Change

    See Change Well-Known Member

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    I'd be looking at it on the basis of your experience in investing.

    We know the property market , but not the share market .

    About 6 years ago we bought two units in our super in Manly, Sydney . Those have both come close to doubling . We've sold one and have the just put the other on the market .

    In terms of equity in, we invested around 500 K . Increased equity in the time frame is around an additional 500 K in each property over that time frame . After all expenses , minor reno etc so we now have somewhere between an additional 900 - 1 mill equity . Close to 200 % return .

    Borrowing in the super only seemed to affect us when we tried to borrow in the same bank ( NAB ) . Wasn't an issue with other banks , but that might have changed since then .

    Since selling the first property in manly , we've paid cash for two other properties , in Brisbane and recently Hobart and the rest is sitting in an offset account in the super fund .

    Cliff
     
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