SMSF question

hey everyone, I've got close to 100k in my superfund, i want to buy a property with that money but is it feasible with only 100k? also i have no idea how to go about it so does anyone have any recommendations or tips with what i should do? id be interested in purchasing something cheap with it e.g. Ballarat, geelong etc etc

 

It is not just a question of your SMSF having $100K cash in it. If you require a loan (likely) then the SMSF needs to be able to demonstrate that it can fund any negative cash flows (comes from member contributions). Also SMSF investments must follow your documented investment strategy (which is not likely to state that all funds are to be invested in property to the exclusion of shares etc).

You need to see an accountant as well as a mortgage broker familiar with SMSF borrowings and setups.

 

Hi Steve,

I doubt that a SMSF with $100k would be cost effective and feasible, generally speaking, you could consider:
1. Combining with a partner/ family member to bump up your super
2. Contributions into a SMSF

All these will require advice as well as consideration of the cost of set up and running expenses.

If you are borrowing, you are limited to non-bank lenders as majority of SMSF Lenders require $200k balance.

SMSF lending is generally based on contributions so you will need a history of contributions as well as the rental income of the property.

With that balance you may be limited to regional areas, for some unknown region I had 2 separate clients buy in Morwell last week.

Re the balance, low balances generally occur with younger people, so a Statement of Advice can still be written to acknowledge the $200k minimum balance "myth" that is you understand the risks and benefits of SMSF and the running costs of SMSF.

Again, this is not advice. Hope that helps

Cheers Ivan

 

Have you thought about diversification? If you have a significant share portfolio outside super then maybe you are okay but if you don't then you really are putting all your eggs in one basket and this is higher risk.

All good adding another property under the belt but your SMSF wouldn't be very diversified with all your money going into 1 asset... What would be your explain plan if something doesn't go to plan?

 

thanks for the replies guys.

if you buy the house and its positively geared straight away then doesn't that change things?

morwell and those areas seem like they have alot of potential as they get such good returns.

i have no knowledge of shares haha

 

What is your knowledge on property then?

Why Morwell?

Have you thought about diversification?

Are you buying a property because you can say you own x properties?

If you want to buy property and get diversified then buy shares that are invested in property - either through trust/managed funds (VAP - last 12 months down 10.2% but since inception 12.27% p.a. up or last 5 years up 13.17% p.a.) or direct shares (Westfield).

From the outside I think there is a bit more learning you should look into before you decide to self manage.

 

I know several investors who have not done well with shares, diversification in their cases have added risk rather than staying with lower risk options (to them) of additional property investments.

As @Redwood points out, $100k, even leveraged, will only be a small fund and will need to be combined with a partner to make it worthwhile. The trust deed would may need to set out that you can invest up to x% in property or a single asset/asset class.

 

As a guide you would only do that with large contributions coming in. The fees will make it hard to outperform other superannuation structures.

Nobody can stop you setting it up.

 

mmm thanks guys, you have given me alot to think about, my understanding was if I set it all up by myself, id have no outgoings except for an accountant every financial year, and id be contributing my 220 a week to my super and because it's positively geared already, within about 10 years without even thinking about it, ive now got a paid off property which has also risen in value.
then repeat the steps again. how much would it cost per year to have a basic smsf approx?

 

I pay $2500 for tax returns, financial reports and audit.

A benefit not many people talk about smsf is the a psicological one. Since I have my smsf I feel it is my money and look more after it. I salary sacrifice to the max and it has grown more in the past two years than it did since I started working in Australia 12 years ago.

With 100K balance and the current lending rules, I would question the quality of the property you can get. Not knowing you income, i would sugest to salari sacrifice up to the max 25K and once you have a 200k balance you will have access to better property options.

 

The ATO can. They can refuse to issue an ABN and wont register all funds with small balances [under $150K. +(That seems to be their target selection level)]. The ATO knows all member balances in existing super so its part of their tests. They also target individuals with past poor compliance or arrears if they suspect early release or other concerns.

They do call to discuss before doing so. Balances under $150K have a high incidence of potential early release or use in unapproved arrangements. That said I have had such calls and when the strateguy is explained they are accepting of some reasons. eg I had aclinet with quite low balances initially who then planned to roll in other family to the fund and add a large contribution from a small business CGT event..

There are other alternatives to a SMSF for non-property investment under member / trustee direction where there are small balances. This may be more practical as the fund will still do all the compliance and admin for $600-$800 pa in fees v's say $2K PLUS for a SMSF.

 

Hi Steve,
I invested into a SMSF with about $160,000 and this was against recommendations all saying you need a minimum of 200K. I have worked out some numbers for the last 3 years of doing this and have outperformed my retail fund during that 3 year period. When you borrow in a SMSF you will need a minimum 20% deposit so just make sure you work out your numbers so you can afford on the all purchase costs and make sure you have enough of a buffer left over. Lawrence