SMSF vs. Super

Hi guys,

I'm looking to combine my wife and my super into an SMSF and purchase a property. We would have ~$150K by end of FY17.

My accountant and I have already setup the SMSF, however I also have an account with BT superwrap.

I don't want to pay two sets of fees so looking to decide on one ASAP.

Could you please let me know if I should pull the trigger and go with SMSF to purchase property or kill the SMSF and just go with the standard industry super fund (which is BTSuperWrap)

Advice appreciated.

Cheers

Rob

 

This is financial advice - you will need someone with an AFSL to advise you.

 

SMSF - greater flexibility but higher fees with a high level of involvement. You get what you picked.

Industry Fund - less flexibility but lower fees and practically zero involvement. You get what they give.

Which one suits your strategy / time / hands on involvement?

 

No advice but I personally wouldn't be purchasing a house within my SMSF. I have a SMSF and when we started it had about the same amount as you in total dollars but I wouldn't be looking at property within it.

Talk to your financial planner but the biggest turn off for us was that you;

1. Cant draw the equity against the property - Huge advantage to get ahead, the only way to release your equity is to sell and buy again (1x selling fees and 2x buying fees (inc stamp).

2. Banks will give lower LVR (IIRC max is 60 or 70% LVR)

3. If you need to liquidate the asset you have to sell it all (e.g. when you go to pension phase you need to draw a minimum pension based on the total assets each year). E.g. say the house is worth 990k (no mortgage) and you have 10k in cash and you need to draw a 4% pension or 40k this means that you need to sell the house (selling fees again) so you can pay the pension as you are short 30k. This now means you are at 970k cash (getting 2%?) and zero money invested.

Again no advice this was our thoughts and go seek your own independent advice

If you want to gloat to your friends that you have an extra 1-3 houses (in SMSF) then sure go ahead, however houses isn't the only asset class out there.

 

Have you figured out what type of property you'd be able to purchase in your smsf? That would be the decider for me, is it a property that you project will be able to assist you towards your end goal? If it's a unit in a very regional area, marginal cash flow and predicted growth it may not be worth the ongoing cost and time running an smsf. Only you can decide though.

 

I'm pretty sure one of the brokers mentioned to me the other day that Macquarie offer 80% lends to SMSFs provided it's a principal & interest loan (as opposed to interest only). Of course there will be other criteria but worth pointing out.

 

Just one question, if you use all your super (in your SMSF) to buy a property, what are you intending to use to invest in the equity market?

your cash outside of super????

 

@virgo... The OP may not wish to invest in the equities market...

 

Most lenders now require the super fund to have assets outside the property, so you can't put all of your super into the deposit on an smsf purchase.

 

Most has been said already but from someone that did this in the last 12 months a few extra points:

1. As has been said LVRs are tight Mac will do 80% but they won't do offset etc. or they didn't when we where looking.
2. You can't draw equity as has been said but you can get offset accounts from some lenders, if you do this with IO then you can at least put all spare cash in the offset and use that later for a 2nd purchase etc.
3. As also said most lenders want 10% of your SMSF in liquid funds (cash/shares) so if your portfolio is worth 500k (incl value of property) then you need to have 50k left over after purchase etc.
4. Personally I think you want 200k+ bare minimum if you going to buy property (quality)
5. You will pay higher interests rates at the moment expect low to mid 5s depending on product etc.

For us it made sense as we had a long term plan for SMSF (20+ years) and a healthy starting point but it is a lot of work and a lot to learn but like most things in hindsight wasn't as bad as it seemed at the time.

None of this is advise just my own experience as Terry said make sure if you do go ahead you get professional advice and I'd even advise from two different sources as there is a lot of misinformation on the topic even from professionals.

 

Tobe,

Not necessarily true, certain lenders not all require "liquidity" that is 10% of purchase price or 6 months interest coverage to cover the rainy day. Certain lenders don't require this at all...

Cheers Ivan

 

Rob -
Have you seen the bill from your accountant to establish the SMSF? if yes, I doubt you wanna kill the SMSF. These days an accountant cannot just say ye mate lets ste up an smsf, they need to provide an SOA which will generally say:
1. You have > $200k in super - if less, why is the smsf cost effective
2. why would a reasonable financial planner recomend the smsf
3. comparison of costs from your old fund (i.e industry fund) to the SMSF
4. investment strategy over the lifespan of the fund

amongst others....

If your accountant clearly conveyed the above, you probably would not be posing these questions? don't get me wrong - I hate SOA's but, this is a example for a reason for the ASIC madness,

Cheers Ivan