Buying an IP in Self Managed Superanuation fund

[vh2000]

Hi All,

We have about $500K savings in a bank Superanuation managed fund (CFS). We plan to setup a Self Managed Superanuation fund (SMSF) and transfer this money to it. We will then buy an IP (+ stamp duties & other costs) to the amount of $450K (leaving $50K bucket in cash). Rental income (- expenses) will be taxed at 15%. When we turn 60 we will will convert this SMSF into an income stream and pay no tax.

Our annual income from the SMSF has to be a minimum of $20K (4% of $500K). With the current rental situation we will will get about $13.5K or 3% return after expenses. The $6.5K difference will be from the cash bucket. Hopefully the retal return will be at least 4% before our cash bucket empty.

We are seeking your advice in regarding the Pros and Cons of the above option, what else we need to know and should allow for. At the moment we have 1 IP (negative geared at 30% tax rate with a loss of $8K/year net) and will receive a public service superanuation pension of $80K/year combined when we retire in 2 or 3 years time.

Best Regards

Huey

 

[Pushka]

Huey, It is rather putting all your assets into one asset type and your Trust Deed may not allow for that - you usually need to diversify into shares, cash and possibly property. Also stamp duty on a $450000 property will be some thousands and eat badly into that $50,000 left over. Also, you will need to ensure that the property can be sold when needed for pension purposes.

Also, you will need to have the fund audited, and accounting fees which all eat into your fund.

Bottom line - It just seems too much to put into one asset type to be allowed under the SMSF rules.

 

[vh2000]

Thanks Pushka.

 

[Pushka]

I thought others would comment on this so am bumping it for you!

 

[steveadl]

Our annual income from the SMSF has to be a minimum of $20K (4% of $500K). With the current rental situation we will will get about $13.5K or 3% return after expenses. The $6.5K difference will be from the cash bucket. Hopefully the retal return will be at least 4% before our cash bucket empty.

I don't quite get this part. If you are buying the $450k with cash from the SMSF, then why do you still have to make up a $6.5k difference from the remaining cash?

 

[vh2000]

I don't quite get this part. If you are buying the $450k with cash from the SMSF, then why do you still have to make up a $6.5k difference from the remaining cash?

Hi Steve,

When we convert our super fund of $500K from the "accummulative" phase to the "pension" phase we have to withdraw a minimum income of 4% of 500K or $20K/year (income from the house + cash).

I think with $500K in super fund we only can buy a 1-br serviced apartment for under $200K.

Best Regards

Huey