Pros and Cons of Self Managed Super Fund IP

Hi,

My wife and I are considering purchasing our second investment property and we are considering starting a self managed super fund this time with our superannuations combined to provide the deposit on this IP purchase. I would like to purchase a positively geared property in a regional hub using this method and I was wondering whether anybody has had any experience in this area of property investment that could provide some insight into the advantages and disadvantages of using an SMSF to provide a deposit on an IP.

So far with the research that I've done my understanding is as follows:

• The property could only be for the sole purpose for increasing super for my retirement, so my wife and I could not live in it
• Any rental income would be paid directly into the SMSF
• Any mortgage repayments, costs, repairs and maintenance would be paid directly out of the SMSF
• If I sold it any profit would go back to the SMSF
• If I hold on to it until retirement I pay no capital gains tax if I sell it at the retirement phase
• The costs cannot be claimed as deductions to reduce my taxable income
• The fees may be higher than a regular super fund

Any insights would be much appreciated.

Thanks,
Dan

 

I think you should look at the SMSF as a separate taxpayer. Think of it as another person.

It buys the property. It claims the deductions, it receives the rents, it pays taxes etc

Also importantly the SMSF cannot be the legal owner owner of the property while there is a loan in place, any property has to be owned by a separate custodian trustee until the loan is paid off and the mortgage discharged.

 

Disadvantages
Higher interest rate almost 100 basis points
Must have an audit yearly
Cost of accounting (Including audit $3300-$3500) per annum
Not as easy to get finance
May become impossible to borrow in future
Smsf can't borrow to build

............

 

What do you mean it may become impossible to borrow in future?

 

High probability that the Royal Commission will shut down lending through super within the next few years.

I wouldn't say that it's harder to get finance. There's certainly a lot of compliance to meet and the criteria are different, but this can work in some people's favour. If you've been making extra contributions to super over time, it can actually be easier to get finance.

 

The cost of accounting for auditing at $3300-$3500 per annum destroys the positive IP cash flow. Is this amount standard or can the audit be done more cost effectively? Is it mandatory?

 

But if I managed to get it done prior to any changes made by the royal commission it shouldn't affect my ability to borrow outside of the SMSF any more than purchasing a second IP in the usual way would. Would it?

 

@3DSDan borrowing inside your SMSF technically doesn't affect your ability to borrow in your own name, but lenders could change their policy on this at any time.

 

The cost for a smsf may be largely fixed vs incremental fees for both member super accounts. Your existing fees should be compared. Also insurances and other benefits

 

Wow those are high fees. You need to shop around me thinks.

 

One of my client has been quoted around $2300 so yea, definitely shop around.

Cheers,
David

 

I was able to renegotiate with our accounting firm to $3,000 but they are a premium agency with advisors on hand to answer calls and emails I'm prepared to pay more for advise as we. Are not a set and Forget and still developing portfolio.
I have seen online products as low as $1000 this maybe good just not at our stage.
Online Super Fund - SMSF (Self Managed Super Fund) - Fees
Here is a table of fees

 

I also came across esuperfund which is even cheaper.

Pardon my ignorance here, but $2-3K for a single asset in SMSF sounds excessive to me...

 

Depends i have a client with a single asset in an smsf. A unique strategy for that particular asset will result in a 500k tax saving in future years.

 

Sounds like money well spent in that situation!

In my post I'm thinking about a 'buy, renovate (cosmetic) and hold' type of property within an SMSF environment.

 

@bookworm if you are renovating and particularly if you have an lrba then you would need to consider the single acquirable asset provisions.