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What type of property for smsf property investment

Discussion in 'General Property Chat' started by ripas, 9th Aug, 2015.

  1. ripas

    ripas Member

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    Hi folks

    We are just going through the process of setting up our SMSF - signed the documents yesterday as a matter of fact :) Using 20% deposit we can afford x2 properties at $700k each. We are yet to have an IP outside of super as we reduce our PPOR mortgage. We are both 42 so a while before preservation age.

    From many hours reading these forums (and Somersoft) it appears recommendations lean toward property that is newish (requiring less upkeep /renovation) with good long term CG. I'm currently thinking a new unit at Lutwyche, Brisbane and perhaps a house/land on the Sunshine Coast. There is also an option of a new OTP unit in Caloundra being discussed in another thread.

    Looking for advice on what to buy. Any input is appreciated.
     
  2. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    Have you considered commercial? Offload the r&m to the tenant so you dont eat super balance when mrs smith wants the oven changed ;-)
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Consider the number of lenders are reducing as are LVRs. You may need to consider 30% deposits.

    Being a SMSF does really change anything in terms of type of property - in my view. It still needs to be a good investment.

    Just consider that a SMSF cannot do further borrowings against the property.
     
  4. Chilliblue

    Chilliblue Well-Known Member

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    Have you reviewed the requirements and legislation as to SMSF's in your particular circumstances and have a clear understanding whether property is the better investment vehicle, what your requirements are during the hold (one being brought up by Terry in the previous post) and how to exit the SMSF?

    If you are still going ahead with a property purchase, then I personally would be looking towards a commercial property.
     
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  5. ripas

    ripas Member

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    Never really considered commercial...........best i start researching more.....

    Is another option to buy one more expensive property in the inner city ring - Newstead for example? Should be a good long term hold.
     
    Last edited: 9th Aug, 2015
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Think about the estate planning aspects too.
     
  7. Chilliblue

    Chilliblue Well-Known Member

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    Both go hand in glove
     
  8. CosmicTrevor

    CosmicTrevor Well-Known Member

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    Hey Ripas, as Terry said work on a 30% deposit AND make sure you have a cash buffer left over to cover costs. I personally wouldn't go for 1 expensive property and I also wouldn't go for 2 x $700k properties either, especially if they are apartments as this means they are likely to be 3B. Whether a 3B is the right investment is hard to know, but the reality is they may not yield proportionally more than a 2B - so for example, $550pw rent for a $550k 2B apartment is not unreasonable, but you may not achieve $700pw for a $700k 3B apartment and your holding costs will be higher. Thus in my view you need to have a well thought out plan and comprehensive due diligence to go with a 3B apartment. A 3B house is an entirely different consideration as you are getting some land in that.

    I have made some points in other threads and I speak from experience having bought 2 IPs for my SMSF in Brisbane;
    • choose your own lawyer for the conveyance, one that has experience with SMSF and OTP would be helpful.
    • get a good finance broker on board and be prepared for a 14 day settlement for OTP
    • avoid large developments with expensive tenant facilities - they look great on the renders but will eat into your cash flow.
    • read all documentation thoroughly and do not assume that the well known developers will be fair in their contracts. In my experience contracts from these guys were the worst in terms of "though shall not object if ..." clauses.
    Newstead & New Farm would be my choice over FV and Bowen Hills for the Inner North, but avoid the generic high density little apartments that have no features to differentiate on.

    Trev
     
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  9. ripas

    ripas Member

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    Thanks for the post @CosmicTrevor - you mention you have bought 2 IP's in your SMSF - can you elaborate on what / why you bought these particular properties. I dont want to get this decision wrong...
     
  10. CosmicTrevor

    CosmicTrevor Well-Known Member

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    Sent you a PM Ripas
     
  11. Jeah_

    Jeah_ Well-Known Member

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    Most lenders to SMSFs will only give a LVR of 72%. You have probably also discovered that you are now required to keep more than 10% of the total value of the SMSF's assets in liquid assets. This would mean to purchase two 700k properties you would need around $660k of cash in your superfund currently.

    You will also have to set up a custodial company to buy the properties.

    We have also found that SMSF lenders require a fair bit of time to do their due diligence and your finance approval may take up to 21 days from signing of contract and your settlement 42 days. This can be a bit of a pain if you're trying to do a quick deal in QLD with a standard 30 day settlement.
     
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  12. Vasa

    Vasa Member

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    Hi Jeah
    This is the first I've heard of the 10% liquid assets requirement and I have been doing some research on this lately. When did this change or get announced?
    Thanks
     
  13. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    With lenders reducing LVR's for resi stock and implementing 10% liquidity - its a no brainer to get a decent commercial property. Particularly one that has excellent location and potential to develop so that you can do this at later stage within the SMSF (provided you have built up enough cash).
     
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  14. CosmicTrevor

    CosmicTrevor Well-Known Member

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    Jeah, for OTP settlement is 14 days including weekends! It was a white knuckle ride for me.
     
  15. Jeah_

    Jeah_ Well-Known Member

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    Sorry, should have prefaced with a 'most SMSF lenders' require the 10%. We found out whilst using Bank of Melbourne. They brought this into place in May this year. Might be an idea to check with your lender to clarify. Apologies if I've caused you any unwarranted angst.

    Jaysus..I would have gone nuts.
     
  16. Tekoz

    Tekoz Well-Known Member

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    What about NRAS investment property ? is that possible for SMSF before the government or APRA close the loophole ?
     
  17. Be Developer

    Be Developer Property Developer Business Member

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    if you are going down this path, please set up buying structure correctly!

    have experienced lawyer or accountant or whoever you are using to set it up for you!

    we have gone down this path and used @RPI to setup legal buying structure with a view of developing a property later!
     
  18. Vasa

    Vasa Member

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    Thanks for the clarification Jeah.
     
  19. Jeah_

    Jeah_ Well-Known Member

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    We're just looking at another property with our SMSF. We have been advised by our SMSF manager that BOM, St George and Mac Bank will only lend up to an LVR of 70% as of 25th July. It may be time to start looking at other SMSF managers.
     
  20. Big Will

    Big Will Well-Known Member

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    If you buy in a SMSF are you able to release equity for future purchases?

    E.g house today worth 500k and you have a loan of 250k and in 10 years the house is worth 1M, is there a way to draw out some of the equity (say 400k) to purchase another?
     
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