SMSF Property
Can I buy SMSF property? It’s a question we’re often asked and the answer is “Yes!” – as long as you comply with the rules and you have enough funds to justify it. The benefits of buying property within your SMSF are significant but it isn’t for everyone. We’ll ensure it fits with your strategy and goals before recommending to you.
We make the process easy, by providing an end to end service including setting the overall strategic financial plan, establishing the fund, the trustee companies, the bare trusts, investment strategies, applying for ABN’s and TFN’s, all compliance required for the investment strategy of the fund, through to working with your finance brokers, banks, real estate and settlement agents to finalise your property purchase.
How are we different from the rest?
At Empire there is absolutely, positively no commissions received or requested from any developer, sales agent or house and land package promoter. You can be guaranteed that the strategic advice will always be at the heart of our advice, not just some fancy ploy to entice you to buy the heavily commission loaded property we can offer you.
We also don’t believe in doing things ad-hoc, and won’t just set up self managed super funds to buy property as an isolated transaction. There are plenty of firms out there looking for a quick fee who will act on your instructions, with little thought given to the other options available, or what your end goal is, and how this transaction will either assist, or detract you from getting there.
We believe in long term, strategic advice, and will look at using your super to buy property as part of your “big picture”, overall long term plan only if it makes sense to do so.
“The entire team at Empire have been fantastic. They showed us how we could use our super to buy the property, save tax by contributing money to the fund and pay it off in 7 or 8 years. They did all the set up of the funds, helped us transfer the money and introduced us to a property buyers agent to make sure we bought a good house. The service we’ve received has been outstanding and we continue to refer anyone who needs great advice to them. ”
– Mark and Jane Ivens, Port Kennedy
What do most people want to know about SMSF property?
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1. Do I have enough money to buy property in my super?
That depend on who you ask. The generally accepted rule is that you need in excess of $200 000 in your super to justify the switch to SMSF (this can be jointly between you and your partner). We believe this to be true especially if you are buying property with your fund. Many property sales led strategies will use smaller balances and then borrow more to buy the property. With such a low tax rate in super, negative gearing is pointless, and then all your employer or personal contributions go to just servicing interest.
If you do not have in excess of $200 000 and still want to consider this strategy, then don’t despair. Our long term strategic planning approach will work out a plan to get you there.
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2. What type of property should I buy?
We are not licenced real estate agents, and cannot advise on a specific property you should purchase. But our general philosophy is that super is a long term investment, and therefore long term capital growth is the key. Because we will generally advise on a very, very healthy deposit, high rental yields are not as important, so the focus can be on capital appreciation. Because property price increases are generally related to land appreciating and buildings depreciating (hence why the government lets you claim it), we emphasise greater importance on the land component rather than the box sitting on it. And land typically will only appreciate if demand is greater than supply – if there is still developable land around you as far as the eye can see, then it is difficult for that to occur. And finally, where can value be added? If you are buying at the beginning of the food chain, much more value can be gained than if you buy at the end of the end of the value cycle once the original land owner, builder, develop and sales person has added their margin.
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3. Who can help me?
You should only speak to an experienced adviser who holds or is an authorised representative of an Australian Financial Services Licence. And we would strongly recommend seeking strategic advice first, and locating the property second. It may be difficult to feel comfortable that advice that is led by, or introduced by a property sales campaign will be impartial or unconflicted.
You will also need the services of a finance broker and accountant to run the finances of the fund after it is set up. We can assist with introductions to trusted service providers, or work closely with your existing relationships.
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Beware the Property Spruikers
What we most definitely are not is one of these “property mentors”, “wealth educators” or other name that unlicensed, unregulated spruikers often use to disguise their true intentions – to sell you a property.
In most states of Australia, including Western Australia, there is no requirement for somebody selling a new house and land package to be a licensed real estate representative. Furthermore, they do not need to be a holder or authorized representative of an Australian Financial Services Licence to sell investment properties. That creates an interesting gray area, where the promoters of these types of new house and land package property investments are not licensed or regulated under any federal or state authority.
Invariably, in these cases, the primary objective of this service is to sell you a property (or many) that carries with it a significant commission, rather than focus on goals, objectives, and strategies first. There has been significant press coverage of this industry, and we’d refer you to the following two links to articles from The West Australian and The Sunday Times that may give you more information.
SMSF Property Advice – Without the Sales Commission
At Empire we do not accept any commissions from property developers, and do not promote or sell properties to you. We look at your overall financial position, goals and objectives and will only recommend considering an SMSF to buy property if the circumstances are suitable. This is what we refer to as our “Strategy First” approach to financial advice – strategy first, investment selection second.
“If selling the property is the primary driver and the advice is secondary, then stop and consider with heightened caution ”
– Raymond Pecotic. Managing Director
SMSF Property Pros and Cons
Pros
- Purchase your business premises with the market rate rent paid to your SMSF
- Limited Recourse Borrowing Arrangements (LRBA) means whole super fund is not at risk if loan defaults
- Super funds are taxed at 15% rather than up to 49% in your own personal name
- If property is sold during accumulation phase, the capital gains tax is calculated at a discounted rate
- If property is sold during the pension phase, there is no capital gains tax
Cons
- Residential property cannot be lived in or rented by a fund member or a relative
- If the property is negatively geared, the tax deductions are only deductible at 15%
- Property is an illiquid, lumpy asset and may not be able to meet minimum income drawdowns in retirement as required by law
Your Support Team
We’ve helped hundreds of every day individuals and families just like you. We are well experienced and properly qualified and licenced to help you through this process and all the rules and regulations surrounding SMSF’s and Property.
Call us now on (08) 9323 3000 or complete the form below to start the conversation.
