SMSF property v/s Super gains in 15 years

Hi All,

Just curious, if people calculate IRR (Internal rate of return) calculations when investing in real estate through SMSF v/s parking their fund in regular individual super fund over certain number of years?

Happy to discuss and share my thoughts...

Thanks

 

Why ? Its like counting bodies on a battlefield. It doesnt change the outcome. One danger of this approach is assumptions about past performance will be used to project potential future changes. The cashflows are however very important.

 

Impossible to calculate. So much depends on the real estate - what, when and where. You can compare share holdings, but properties are usually unique.

 

I would expect most people would use debt to buy property in their SMSF.

When people buy non-property assets (shares and cash type investments), they are most likely not using debt.

Debt increases one’s IRR. So, for me, it is an unfair comparison, verging on silly.

Happy to be educated .

 

Some SMSF use cash. However the investment amount often limits this. Not too many funds have the capital to go direct with large amounts invested.
Many SMSFs also invest positively using indirect means (eg unit trusts)
Many SMSFs also invest at low LVR and common advice is to limit gearing so the property is at least neutrally geared for cashflows.
I'm not aware of any concrete data from the ATO on gearing, property and its performance.

Benefits of a smsf are largely tax driven. Low or no CGT, a land tax threshold. Tax rate of between 0-15%. This is very appealling to property investment if a fund has a suitable financial position to afford a property.

 

So, the comparison is based on 2 scenarios:

First, super balance of 145K between me and wife, considering net combined super contribution of 10k every year after deducting tax, death insurance, IP, TPD and admin fee.

After 15 years, if the total returns were calculated to be 600K, then the interest rate comes to 6%.
See screenshot below:



Second scenario, compare this to SMSF property with same situation, the only difference being there is an opening balance of 350K which is the purchase price of the property (100K deposit + 250K loan). After net contribution of 10K every year and 15 year period, considering the property appreciates 100%, then the rate of return is 3% which is half of what a super fund could generate. See screenshot below:



P.S: No taxation was accounted for when calculating the returns.

Lastly, I'm not sure about the tax obligations at the end of 15 years, so happy to be educated

 

It is common to do forward cash flows for different investments. I don’t see why residential property in a SMSF would be any different.

Engaging an investment advisor for this type of thing is good as they have a deeper knowledge of different forecast returns.

 

@Sam Alwani, as per @kierank, analysis of the two needs to be via IRR to get meaningful & comparable results.

The property example has an opening balance of $205k greater than the other example - is this a loan? Where is it repaid? Have you made the same allowances for insurance etc against the 2nd scenario?

Is it unrealistic to model the same fixed return or contribution over the entire analysis?