Buying property with Super fund

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Sydney2020, 15th May, 2022.

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  1. Sydney2020

    Sydney2020 Member

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    G'day All,

    I am interested in buying a property with my limited amount of Industry Superfund.
    I am not sure if I am eligible for it so need your expert opinion.
    Below is my current scenario:
    I bought an apartment in Sydney in 2020 for PPOR. Don't have equity yet to be used.
    I have a stable full time job and using REST super with bit over $100k stored.
    I don't have any dependant and don't own any IP yet.
    I am looking at properties that are under $350k.
    Will I be able to use my super towards the deposit of the property?
    Do I need a special tax agent for this?
    Is it a straight forward process when dealing with lenders?
    What are some risks associated with this?
    Thanks in advance.
     
  2. Hockey Monkey

    Hockey Monkey Well-Known Member

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    To hold direct property in super you will need to open a SMSF, however a 100k balance is unlikely to warrant the costs involved.

    Lots of restrictions, high interest rates and costs. Concentration risk by having all your funds in one asset. You need liquidity to service the loan, maintain the property etc. even when not rented.
     
  3. Marg4000

    Marg4000 Well-Known Member

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    Are you thinking of the election promise to use your super to buy a home?

    if so, that is restricted to first home buyers only so you are not eligible.
     
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  4. Sydney2020

    Sydney2020 Member

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    Thank you for your response.
    Yes I know I am not a first home buyer.
    I am worried about my super being so low at the age of 40. So I was thinking of purchasing a property with it.
     
  5. Hockey Monkey

    Hockey Monkey Well-Known Member

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    are you making additional contributions? Eg maxing out the 27.5k concessional contribution limit? There is still time to grow your balance without taking on the risk of leverage into a single concentrated asset
     
  6. Sydney2020

    Sydney2020 Member

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    Thank you for the suggestion.
    No, I am not making any additional contribution yet as I am saving money to buy an IP.
    The issue is that every week when I check my super balance, I see it is decreasing and it worries me. It is set to High atm.
     
  7. MB18

    MB18 Well-Known Member

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    But what was it doing every week that you checked it last year?

    Maybe check it once a year instead.

    It won't move up in a straight line, But it will move up more than it moves down. There is over 100 years of data to reaffrim that.
     
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  8. Marg4000

    Marg4000 Well-Known Member

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    Buying a property in super is not guaranteed to out-perform the return you are already getting.

    Make sure you take advantage of tax deductible contributions each year.
     
  9. Sydney2020

    Sydney2020 Member

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    Thank you @Marg400 and MB18 for the suggestions. I will look into the tax deductible contribution.
     
  10. Scott No Mates

    Scott No Mates Well-Known Member

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    So you want to move away from a diversified portfolio with 10-15% in property to 50%+ exposure, lower returns and are concerned about having a low balance?

    As @Hockey Monkey has suggested, considered a small regular contribution to the fund either pre or post tax which will go alot further towards building your balance.

    There's no shortcut.
     
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  11. Properwin

    Properwin Well-Known Member

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    Speak to an accountant that has expertise and experience with SMSF - they can give you advice as to how much you can borrow to purchase an IP with super. If you don't have much super it may not be worth it or even possible.
     
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  12. Scott No Mates

    Scott No Mates Well-Known Member

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    You don't check your portfolio annually, monthly should be adequate.

    As they say "a little information is dangerous". Unless you are generally aware of the performance of each asset class within your fund and how the performance compares to the market for that category, it's just information. If you understand the trends and are satisfied that it's better to crystallize a loss or gain, then time is on your side.

    As for the best investment strategy within super, as you're young the aggressive stream tends to have higher returns coupled with higher risk of a negative year more often than the less aggressive investment streams, it is to be expected.
     
  13. David Han

    David Han Mortgage Lending Specialist Business Member

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    You can set up an SMSF Trust with you tax agent.
    Generally you can obtain a pre-approval before you transfer the money to the trust.
    Lenders have a policy requirement where you need to have 5% in liquidity so you can't use all of your super money towards the deposit, but as long as you leave 5%, the remainder can be used towards the deposit and the rest will come from the SMSF Loan subject to the LVR requirements and other lending criteria.
     
  14. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Not all lenders will have an SMSF product and policy and those that do have varying policies.

    A lot of lenders have a liquidity policy whereby you need extra savings in the SMSF for the purchase whereas other lenders like Liberty don't have this requirement.

    The other thing is going to be serviceability so have a broker or banker run the numbers first to see what you are able to borrow from both a servicing perspective and a deposit perspective.

    The fees are higher for SMSF products vs normal home loans.

    You also need to look at the Accountant set up fees (SMSF, Bare Trust, Corporate Trustees, etc) and ongoing auditing fees.
     
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its also a different type of investment compared to neg geared personal property. Since the tax rate on SMSF earnings is low (15%) a neg gearing loss isn't a benefit. Neutrally and positive geared arangements may be more practical. This will avoid issues where future contributions may otherwise be continually consumed to pay the loan. Low liquidity funds are a concern since if a tennat vacancy occurs there may not be a plan B to make loan repayments. This is why liquidity buffers and the amount of leverage should be very carefully considered. Many people seek to race in and borrow as much as they can when this may be a very poor strategy for a SMSF.

    Some people can also use different types of arrangements which allow the members to be a co-owner with a interest in a property and they are negatively geared which the SMSF interest is positively geared. This style of arrangement can be much easier to access and even at owner occupied rates. However the MEMBERS will need to have undrawn equity in OTHER PROPERTY. This allows them to not borrow using the new property as security allowing more flexible arrangements using a ungeared unit trust arrangement.
     
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