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Smsf - recommendation for set up and structure

Discussion in 'General Property Chat' started by Vanders, 25th May, 2016.

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  1. Vanders

    Vanders Member

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    Hi all, I am new to the forum. My hubby and I have a couple of IP's & our PPOR. Our next move is to set up a SMSF and buy a property in it. Apart from Chan and Naylor - finding it hard to find anyone who can set up give us advice about buying property in it. Any recommendations would be welcome?
    Thanks
     
  2. RPI

    RPI Property Lawyer, Town Planner Business Member

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    TerryW on the forum is a structuring guru.
     
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  3. Big Will

    Big Will Well-Known Member

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    We have recently setup our SMSF and happy to provide details if you wish, not sure about your financial situation but they say you need at least 150-200k for a SMSF to be beneficial in terms of cost compared to managed funds..

    For me the biggest question in my mind is why buy another property in a SMSF?

    For us personally we use it to buy shares, for the following reasons;
    1. Diversification - From your post you are currently very heavily weighed in property and as they say not have all your eggs in one basket. If you have assets outside then great!

    2. Flexibility - With shares you are able to sell 1/2, 1/16 or just 100 shares or all compared to a house where it is all or nothing.

    3. Restrictions of buying property within SMSF - Banks will typically lend about 60-70% LVR and to draw out the equity you are unable to. This is a huge issue for me as it removes two thing I like about property.

    As with everything you should plan with the end in mine and even more so with super.
     
  4. Vanders

    Vanders Member

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    Thank Big Will for your reply- yes we have over 200k currently in Super. We have had shares over the years but have not been happy with the performance so sold them.
    We are looking at one property in Super and will diversify the rest of our portfolio.
     
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  5. JacM

    JacM VIC Buyer's Agent Business Member

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    SMSFs can borrow up to 80% LVR for resi, depending on the bank, serviceability criteria etc.

    Asset protection within a SMSF is very nice, as are the lower/exempt taxes on income tax and CGT.

    Note that you cannot "release equity" on a SMSF property. The only way to access the equity is to sell.

    If you go the SMSF route with intentions of buying a property, be sure to set up with a corporate trustee rather than personal trustees.
     
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  6. sanj

    sanj Well-Known Member

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    there are a couple of different areas of expertise you beed/should draw on here. firstly a lawyer competent in these matters who can not only set it up for you properly but also clearly explain to you the pros, cons, responsibilities, risks etc with smsf because it's a lot more involved than some realise.once you get your head around it you should find it pretty manageable though and not difficult.

    secondly I'd recommend seeing a really good financial planner who doesn't make commissions off their advice/recommendations who can help walk you through your ideas, present some counterpoint and alternative options and at the very least get you to make an informed and considered investment decision.
     
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  7. Giuseppe

    Giuseppe Active Member

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    Fwiw, I tried diversifying but, sadly, it didn't work for me. I found shares to be too volatile and got a much, much better return from property. I found a niche and system that works for me, albeit boring. I only diversify with the types of properties I buy. During the last 18 months, the property portfolio has gone crazy while, whatever shares I have went backwards. Buy, buy property...bye bye shares.
     
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  8. mcarthur

    mcarthur Well-Known Member

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    I always assumed, perhaps wrongly, that *any* LVR above 0 is better than nothing since it is leverage - using someone else's money. So even 30% leverage for property (30% my money, 70% banks) seems better to me than having none for shares.

    I understand though that it is possible to borrow for shares, but can a SMSF do that, and is it a wise/good idea?
     
  9. Big Will

    Big Will Well-Known Member

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    Yes - leveraging increases your risk so your profits are greater but so are your losses.

    Borrowing Money through your SMSF Australia - The SMSF Institute | Self Managed Super Funds

    Some food for thought about shares being to risky...

    https://www.vanguardinvestments.com.au/adviser/adv/campaign/index_chart.pdf
     
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  10. JohnPropChat

    JohnPropChat Well-Known Member

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    Mortgage can also come with an offset. Any funds you currently put in savings/term deposits/cash equivalents can go in there and you effectively get the same return as the mortgage.

    If a property in SMSF only grows by 30% in 10 years, leverage makes it 100% or higher or 10%/year, which is better than most investment classes for the average Joe.

    At 70% LVR it's not very hard to find a CF neutral or +ve property. So the property starts paying for itself or in other terms you are actually seeing a return on your 30% deposit - not bad.

    If a property prices crash in then you are in trouble and can loose more than you signed up for - if you sell. No different to any other leveraged investment.

    I say have at least 1 property in SMSF and diversify the remaining funds.
     
  11. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    This is an excellent strategy and one we recommend to most clients particularly as you are unable to do equity releases within SMSF's. The offset is a powerful tool which allows you to reinvest cash in other asset classes. Personally not a fan of having all your SMSF funds within just property.
     
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  12. Greyghost

    Greyghost Well-Known Member

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    Why are you giving taxation structuring advice?
     
  13. Ted Varrick

    Ted Varrick Well-Known Member

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    Why would you want to pay to a bank an outrageous interest rate within your SMSF (deductible at 15%) to buy a property where the expenses are only deductible at 15% (ie. your fund coughs up 85%) in the hope that a capital gain will outpace the cumulative costs?

    Particularly given the next govt might (or might not) change the CG discount amount...

    OK, it may work out depending on how long until your retirement, especially if you are purchasing your own business premises, in which you have a larger amount of control...

    But a consultation with Excel should certainly be in order, as other investment vehicles might provide a much better after tax result.

    Or not.
     
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  14. JacM

    JacM VIC Buyer's Agent Business Member

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    @Greyghost .. Happily sharing a series of known facts relating to the SMSF acquiring property space as that is what the thread is about. One well known fact for instance is that most lenders either will not lend to a SMSF that has no corporate trustee or offer a lower LVR. Thus why most SMSF setups these days have corp trustee setups by default.

    Whether the OP should setup a SMSF, and precisely how it would affect his/her particular circumstances, is a separate question.

    Happy Thursday :)
     
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  15. Newfast

    Newfast Well-Known Member

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    Hi Guys,

    Interesting thread. Just want to share the following and happy to get opinion :-
    My wife and I are also planning to join SMSF and then purshase property. I have done some research and thinking to go with Esuperfund company. But happy to hear your suggestion too. We don't have so much in super , we have roughly 100K $ and planning to buy property for 300K $ or so because we have to 0ay 30% from pocket, may be in victoria. We live in NSW. I also found only CBA, Bank of Melbourne, st george and Macquarie bank only give loan for smsf property investment.
     
  16. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @Newfast

    eSuper have a limited choice of lenders to offer their SMSF clients so you might want to check that out if it is an important factor.
     
  17. RPI

    RPI Property Lawyer, Town Planner Business Member

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    eSuper tends to restrict you across service providers and their cheap setup fees end up not looking so cheap when you compare the costs of these other service providers.
     
  18. Switchtronics

    Switchtronics Active Member

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    2nd this Terry W is a great contributor and exceptionally knowledgeable in this area
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thanks guys!

    But I don't set up SMSFs anymore as I am no longer licenced to give financial advice. SMSFs are a financial product so although I can do the legal work of setting up a trust - SMSF deed, advising on the trustee, structuring the trustee, estate planning aspects - there are associated financial advice components to all this. I am not sure where to draw the line between financial and legal advice so I figure it is best to stay away for now.
     
  20. CosmicTrevor

    CosmicTrevor Well-Known Member

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    As others have said;
    • Corporate trustee for both the SMSF and Custodian
    • Lender that offers an offset
    $100k is not a lot in super to start pursuing property purchases. On a $300k acquisition the bank will probably contribute 70% or $210k. This means you will need to fund $90k, but you should allow an extra $20k for stamp duty, legals and bank costs. In other words you don't have enough in your fund. In fact I believe you are putting yourself in a dangerous position as you will have no cash buffer. By all means setup the SMSF, but be very careful with asset purchases.