What to do with $250k Super?

Hello friends at PC, My wife and I have accumulated about 250k in super in the last 10 years. We are currently at the cross roads between keeping the super in the industry super fund or take it out and create a SMSF investing in property. The main reason for SMSF in properties is that I can leverage up to 65% debt I have been told by broker.

We are still 35 yo and don't need the money anytime soon. For 250k, I can borrow up to additional ~500k, that means I have 750k working for me instead of 250k.
even if property is growing at a slowest rate of 5% pa, it will be equivalent probably the fastest rate of 15% for industry super fund.

What would you guys do if you have 250k to invest in your super, would you keep it in Industry super fund, SMSF shares, or SMSF properties, if properties, are you investing in Residential or Commercial?

 

I'd start a SMSF as you have plenty of time for property investments to work between now and retirement BUT you need to comply with the written investment strategy of the fund, which will not be "put it all into property".

 

Thanks Propertunity, can you please expand on the not "put it all in to property" part of your comment? is that a written rule?

 

Why only 65% ? Most SMSF lenders are offering up to 70% LVR for residential properties on interest-only loans, and I believe that Macquarie is still doing 80% LVR for principal and interest loans.

 

SMSF. Resi or Commercial with good CG. Cash flow won't be the main issue in SMSF at 70% LVR. Most properties tend to be CF neutral or even positive. So focus on growth and paying down debt.

Park extra money in full-offset account (the return works out to be a tad higher than your mortgage interest rate). Diversify into shares as funds build up. When you have enough, liquidate shares and buy another property in 5 to 10 years time.

 

I'd use it to fund 30% deposits + stamp duty for 2 x cash cows. Use the surpluses from the 2 cash cows, plus the member contributions, to pay the first one down ( via offset not via repayments to the actual loan) within @ 10 years. Then, with that paid down, repeat. The 2nd one will be paid off in half the time, as you'll have a much bigger surplus available from the one thats been paid down.

You will own the 2 outright with @ 15 years - give or take...leaving you with 4 dwellings ( 2 x dual occ) producing income that is taxed only at 15% until pension phase.

But thats just me

 

This video might help you a little.

https://content.destiny.com.au/video/ExpertInterviews/AVC/Expert-Interviews-S06E14.mp4

 

For me personally it made sense to setup an SMSF to invest in property, but I had a significantly higher balance and am much closer to retirement.

Considerations;

• maintaining existing industry funds to access existing insurance will require you to keep a minimum balance and minimum contributions. For the sake of modelling lets say you need to keep $10k in total.
• you will need to keep a cash buffer in the SMSF, this is so it can pay the bills and deal with unexpected things.The size of this will depend on the number of properties and the fund's cash flow. Lets say it is $20k, that should be enough unless you anticipate major repairs.
• the setup fees for the SMSF and the custodian trust and the LRBA bank fees for will eat away at this as well.
• stamp duty will bite into this as well.

My gut would be to go with 1 at circa $500k, requiring you to commit $150k, leaving you with $100k up your sleeve for the above bullet points. Going with 2 would probably mean IPs with circa $340k pricing which will restrict where you can buy. Another option is to start with 1 IP around this $340k mark and hold the excess cash in an offset while you decide whether to buy another or diversify.
Your investment strategy doesn't need to comment specifically about asset distribution, but it still needs to allow you the flexibility to go heavy in one class. Also your SMSF deed must allow borrowing.
Make sure your forecasting is cash flow positive unless you are comfortable with cash balances reducing in your super.
Also, if your conversation is starting with a mortgage broker you are having the wrong conversations. Your initial conversations should be with a financial advisor and taxation specialist.
All of the above is not professional advice, seek expert advice please.
Trev

 

I'm surprised more people with an smsf and 30yrs before they can access it don't talk about looking for long term capital growth as their primary motivation. Cash flow is great for managing the smsf easily in the beginning but the potential for having a capital gains free property at preservation age is the major advantage of having property in an smsf.
Why not go for a property with a big flat land component on the fringe of a city and wait 30yrs for development to reach you? If you had done that in rouse hill or schofields in Sydney you would be sitting on literally millions - capital gains free millions that could be converted to shares or whatever the best option is in 2047. The properties were worth bugger all in 1995 and would have had minimal holding costs.
I'd rather go for cash flow properties out of super where I can benefit from it prior to 65 and put my long term bets inside the super where the cash flow will only help me if I make it to 65.
At the end of the day, if you invest in property - your a capital growth speculator, so speculate 30yrs in advance if it's in an smsf at a young age.

 

Firstly reading this initial post in this thread sort of freaks me out a bit.

Maybe sit down and have a chat with a financial planner before you pull any triggers...

 

Why not stick with your industry fund and invest outside of super in property? Where's your diversification?

 

Without knowing the property exposure, gearing and income levels outside your super balance you cannot answer.

Other things like your parents assets or big financial windfall as in the future come into play.

This is an area where a solid, independent, investment professional can help.

 

Hi there,

The powers of your fund are your trust deed and investment strategy.

The investment strategy will include a point around diversification and you will highlight your levels of exposure to each asset class. The important point that backs up diversification is that most lenders will require 10% liquidity at settlement - that is if you buy a $500k property you will need $50k in liquid funds at settlement....this can be in cash, which is the rainy day fund. If you are buying off the plan - certain lenders restrict LVR. You can still source 80% loans - however, apartments are generally coming in under contract price with valuers blaming an oversupply in inner city areas.

We have to be boring with answers as SMSF's are regulated in the advice space so general advice warning applies.

Hope that helps.

Cheers Ivan

 

Thanks for the great replies guys, certainly some great ideas that I would seriously consider. we do have a significant exposures to properties outside of our super with the LVR of 60%, but we are hitting the serviceability assessment wall. I am hoping that serviceability assessment will only be base on super contribution and not debts outside of it.

Some have recommended diversification so not all eggs are in single basket. but I believe that we should invest in what we are good at and familiar with. We have done well in properties in the past so don't mind more exposure in that. We are limiting our risks by invest in different states and different cycles.

 

Ivan, some caution might in order so any SMSF investors don't involuntarily have to grab their ankles vis a vis:-

Westpac hikes rates by up to 117 basis points