SMSF 100k; purchase property or no?

Gday everyone, this is my first thread on this very interesting and informative site. I have been thinking alot about my current situation regarding my SMSF which in turn led me to this fine site. On what I can only call self serving advice I was encouraged to roll my 65k in super out of my industry super fund and into a SMSF for the purpose of buying property. The problem is I didn’t know I would need much more in my SMSF than I would for a deposit for a regular bank loan. So I quickly built the amount up to 100k (while avoiding the 25k pa cap) and now could get a loan for a little under 300k total purchase price. I’m looking at Petrie or perhaps Burpengary near the train line. I’m wondering if this is the best way to go or if I should roll back to an industry super fund and build the amount up to perhaps 200k over the next 4 years. Any advice would be greatly appreciated, thanks.

 

Your bigger issue is going to be whether you can get lending to purchase. Most major banks have pulled out of the SMSF lending space. I think your odds of a loan are low.
Speak to an SMSF specific broker.

 

Also have a read of other SMSF threads where purchasers have been with low account balances and the difficulty of achieving a positive return to your fund.

I may be old school on this but property shouldn't be held in SMSF until you can afford 40% + closing costs & only hold commercial property.

 

Who advised you to set up a smsf with such a low balance?

 

Yes good question. Negative geared property does not work well for super (since its a low tax rate and the loss gets quarantined inside the fund). Low balance funds will struggle to maintain a liquidity buffer and property costs and deposits and duty etc and still have a neutrally geared outcome.

Only a licensed financial adviser can address the question. A SMSF is a financial product.

 

NO don't do it.
Our accountant was always pushing us to do it.
Our combined balance was $200k at the time and now Years later I can tell you it was not enough.

1. SMSF borrowing is considered commercial style lending so rates are 5.5-6.5%(kills so many things)
2. Compliance and audit costs ( around $3000 per annum some more some less)
3. Some time required to manage your business/paperwork
4. The usual realeaste cost of agents vacancies and maintenance issues

On a $300,000 IP its a tough.
My point of view and based on personal experience accountants push some times just for their own benefit creating extra work for them self.(BAD ADVICE)

I FEEL $500k super balance on a $1,000,000 is a good start and still not necessarily residential rather something higher yielding.

 

I agree with SMSFs only buying neutrally geared property (rather than a nominated % LVR) but there is no basis to exclude residential premises. There are many strategies where a SMSF can own commercial property and lease it to a business run by the member/s but no such flexibility for residential which cannot be used by any related parties. Excepting that issue, resi can be far more liquid and also not involve GST complexities.

 

It is probably negligent advice to set up the SMSF with such a low balance. You would probably have a case to claim for your costs of setting it up and unravelling it all.

 

Accountants CANNOT give advice on establishing a SMSF and even with a AFSL (Australian Financial Services License) their advice must meet the members best interests.

A specific balance isnt necessarily a good guide either. There can be very sound and objective reasons to consider a SMSF fully OR PARTIALLY involved in buying property even along with a member as a co-owner which may mean a lesser balance works. The annual costs are somewhat fixed so a fund with $100K may find the annual costs are around 2.5% which is costly and a fund with $400K its lower than even a cheaper industry fund BUT with broader choices and control available.

 

Surely won't suggest super at such low balance ... Seek proper advice but personally I'l say it's no no..

Also keep in mind super interest rates are much higher and so is the yearly cost to maintain.

I'll let the balance grow and watch the space!..


Cheers,

 

This ain't tindr

 

I wouldn't even try unless your Super balance increases, you have left over liquidity of around 10-20%, can supplement each year with maximum $25K concessional amount or can dip in addition some as Non-concessional amount each year. You don't need to confiscate but you need to invest what's there for now, not just to sit in cash. You need to devise a plan at what amount and when you can do it and hopefully financiers will be present to provide finance then....
IMHO, the amount for IP in SMSF is much too low.....! Devise a plan first....

 

I did mention I could get lending for a total purchase of 300k?

 

A long story but a good friend had misplaced trust in his accountant so I trusted his judgement. It turns out my existing accountant was actually more qualified (held required license for SMSF). Looks like I’m rolling back to TWU Super.

 

Thank you for the insight. I appreciate it. I’m starting the process to roll back to TWU Super

 

How much are you out of pocket for all of this?

 

I would actually do that because I’m a stickler for honesty and integrity BUT this would further strain a friendship that’s already not in great shape since this happened. I’ll chalk this up to a lesson learnt and not to trust anyone’s judgement regardless of how good that persons advice has been till now.

 

The accountant knew I wanted to use it to add property to my portfolio. What I didn’t know was he didn’t have the license you mention (AFSL) and not only couldn’t provide me with an SOA but didn’t warn me that 65k (what I rolled out of industry super) was nowhere near enough to begin with. His answer after setting up the SMSF? Well just transfer some of your savings into it.. ie money I’d already paid 25+% on and would get further taxed when transferring to the SMSF. I’m told there’s not much of an earn in starting the SMSF for him and he would likely have done well on the annual fees etc but we were never going to get there after I started realising I couldn’t logically utilise such a small amount for any type of decent property purchase.