I have $40,000 in Super - worth setting up a SMSF to buy an IP?

[beachy]

With all the talk recently of investors setting up SMSF to buy property, made me wonder whether it's worth using my small amount of super to buy something or is it just for people with like $200,000 in super??

Started a new job 1 year ago and employer is contributing about $10,000 to super this year now to my super (my previous income was only about $30,000/year for 10 years)

Personally, I don't think I've got enough to warrant setting up a SMSF and best to keep it as is in MLC and have some diversification, but thought I'd just ask anyway.

 

[china]

40k is too little to set up an smsf to invest in property.

Three months ago I set up an smsf to purchase a commercial property which is now rented to my business.

The costs are very prohibitive. Your 40k would be consumed by stamp duty, conveyancing fees, smsf bank account fees, borrowing fees, loan establishment fees, accountant fees to set up trustee company and bare trusts. Then there are lawyer fees to set up loan documents and terms of commercial lease. I am sure I have left out many more fees.

This would leave you almost nothing for the property.

With 40k I think you should just either use it as a deposit for property outright outside smsf or put it in some blue chip shares.

 

[TPI]

I don't think it's enough to buy property.

Shares maybe, but not property.

 

[Terry_w]

Way too little I think. You should have around $150k generally I think. ASIC seem to think $300k is the magic figure.

 

[Redwood]

With all the talk recently of investors setting up SMSF to buy property, made me wonder whether it's worth using my small amount of super to buy something or is it just for people with like $200,000 in super??

Started a new job 1 year ago and employer is contributing about $10,000 to super this year now to my super (my previous income was only about $30,000/year for 10 years)

Personally, I don't think I've got enough to warrant setting up a SMSF and best to keep it as is in MLC and have some diversification, but thought I'd just ask anyway.

Hi Beachy,

Firstly there is no minimum balance. However $40k is a small amount imo (unless you want to buy a car park....).

An alternative is to combine your super with a partner/ family member and try to get to $100k, which you will be in a better position.

Rule of thumb with SMSF property, you need cash to cover 20% deposit plus costs of acquisition such as stamp duty, accounting costs and legal costs including loan. Hence for a 80% LVR you can use $90-100k as a minimum balance including a cash buffer within the SMSF.

Again, consider a non-concessional contn or combining your super and if yes you have enough to proceed, ensure you receive advice.

All the best!

 

[Wirra436]

Personally, I don't think I've got enough to warrant setting up a SMSF and best to keep it as is in MLC and have some diversification, but thought I'd just ask anyway.

Hey Beachy,

So what made you choose MLC? Current employers choice or personal Choice?
From memory thier fees are quite high.
Have you explored other Super Company options?

Cheers,

Wirra

 

[Redwood]

Hey Beachy,

So what made you choose MLC? Current employers choice or personal Choice?
From memory thier fees are quite high.
Have you explored other Super Company options?

Cheers,

Wirra

They make it very difficult to get the money out i.e rollover from MLC to a SMSF, we now have a direct contact at MLC to process EFT rollovers to avoid the lost cheques and other delays that are caused with MLC.

 

[beachy]

Hey Beachy,

So what made you choose MLC? Current employers choice or personal Choice?
From memory thier fees are quite high.
Have you explored other Super Company options?

Cheers,

Wirra

Been with them on and off for a large part of my working life - Previous employers and early life insurance agent.

Ironic thing was I was with MLC, then insurance agent said to roll everything over to Aviva, only to have MLC buy Aviva and I'm back with MLC again.

Have no idea when it comes to super.

 

[beachy]

40k is too little to set up an smsf to invest in property.

With 40k I think you should just either use it as a deposit for property outright outside smsf or put it in some blue chip shares.

The $40k I have is in super now. I have savings towards a new PPOR coming up + I have current PPOR + 2 IPs

 

[redwing]

It was my MLC Super Fees that had me initially look at a SMSF, I was sick of paying good money for them to play and lose with mine

 

[geoffw]

I agree that $40k is too small for a property.

How is the MLC fund performing?

If it hasn't performed in line with the rise in the ASX in the last year or so then it may be worth while considering an SMSF for direct share investment- or at minimum a different super fund.

If there's been a fair performance- taking fees into account- leave it where it is for a few more years.

 

[Wirra436]

It was my MLC Super Fees that had me initially look at a SMSF, I was sick of paying good money for them to play and lose with mine

Ditto, Hence why I was curious why choose MLC?

I was with MLC in 2007, left Start of 2008, Fees way high and not a good run with Growth.

I was with CBUS and now with AusSuper, been pretty happy with both, in regards to Fees and Growth, nothing Amazing, but nothing Awful either.

Cheers,
Wirra

 

[chilliblue]

The amount you mentioned is way to low. However, if you have shares and other assets that you could role over into a proposed fund to significantly bump up the total amount then it might.

It might be good to visit a few financial brokers (their first appointments are often free) and find one that you are comfortable with to discuss your plans.

 

[JacM]

Agreed - $40k is too little to contemplate setting up a SMSF.

Because a SMSF has to contribute a 20% deposit towards the property price, plus pay stamp duty, buying costs (eg building and pest inspection), bank fees (can be around $2500) and bare trust setup fees, the SMSF would be able to afford a property priced at $140k at a push. Such a property would yield only around $6k (in rent) per year, and a good third of that would get chewed up in annual accounting fees, death and TPD insurances for you, and ASIC fees.

I can't see any sense in setting up a SMSF unless it has $70k at a minimum. It must also be remembered that if a SMSF is setup and all it does is buy one property, then it will not be able to support its member(s) in retirement (unless it is one heck of a high yielding property). As such, if a SMSF setup with just $70k and purchased a property, you would want to be sure you could be bucketing money into the SMSF with a view to it purchasing its second property within say, 3 years. This is why Terry mentioned it is best if there is $150k+. That way the SMSF could set up, and buy two houses straight away.

Everyone's circumstance is different... everyone's income level is different, age proximity to retirement is different, family setup and financial challenges are different. It is for this reason it is always strongly encouraged that someone pondering an SMSF chats it over with a financial advisor first. With that said, many still have little or no exposure to the power of purchasing property with super and are thus by default saying "Oh no, no no no, bad idea". Sometimes you have to hunt around and talk to a few folks and ask "Why?" "Why is it a good/bad idea?" And incorporate your own thoughts and rationale into concluding what is best for you.

Things to remember if you are keen on SMSF: you can "share" a SMSF with someone such as your wife. The SMSF can have up to 4 members. You can "donate" money into your SMSF to help give it a head start.

 

[Scott No Mates]

Follow the advice of some of the above ie have a joint smsf with spouse etc, contribute towards it etc. Contact someone like http://esuperfund.com.au/ who will allow you to set up your own fund and manage it at very competitive rates.

Don't put all your eggs in one basket - ie diversification is the key.

 

[hysterical]

This is why Terry mentioned it is best if there is $150k+. That way the SMSF could set up, and buy two houses straight away.

Hi JacM,

For a SMSF with $150k to purchase 2 properties, the average price of each property will be about $300k and will not have any cash buffer left in the SMSF and also there will not be any other asset class invested by the SMSF right ? Would'nt that be a lack of diversification ?

Cheers

 

[JacM]

Hi JacM,

For a SMSF with $150k to purchase 2 properties, the average price of each property will be about $300k and will not have any cash buffer left in the SMSF and also there will not be any other asset class invested by the SMSF right ? Would'nt that be a lack of diversification ?

Cheers

Hi hysterical

You're paying attention to the numbers - I like it The fund wouldn't really be able to afford 2 x $300k properties let alone have buffer remaining. (A SMSF must pay 20% deposit, plus stamp duty which as a rough guide is say 5%, then about $5k gets chewed up in bank fees, solicitor, building and pest etc. So to purchase 2 x $300k properties the fund would need $160k, then a little more for buffer.)

2 x $250k properties is achievable, with a $15k buffer remaining.

It is the decision of the directors, in accordance with the SMSF investment strategy, as to what they invest in. If they choose not to diversify, that's their own business. Last I heard, the ATO has grizzled a little about some funds that have opted to have investment strategies allowing them to spend all their money on property if they wish... however it stopped at grizzling. They "don't like it" but there is no law against it. SMSF rules are changing all the time so who knows what they'll be saying a year from now. However a SMSF holding property should definitely have a buffer... firstly because it is sensible and secondly because the banks don't tend to provide mortgages to SMSFs that cannot demonstrate they have a buffer.

 

[hysterical]

2 x $250k properties is achievable, with a $15k buffer remaining.

I assume we are talking regional properties ? Whereabout would you consider for such investment ?

Thank you

 

[JacM]

Nice try hysterical

I reserve that information for clients only.

Providing this information to everyone can cause unfortunate numbers of prospective landlords to buy into an area. This can disrupt the nice tight vacancy rates, and result in my clients potentially having to reduce their rents in the future in order to compete for tenants. Thus I'd be doing a disservice to my clients by disclosing where I buy.

I certainly cannot keep entire areas secret indefinitely... nobody can. However I choose to keep quiet about it in order for my clients to enjoy a couple of rent rises before the secret is out, and have their mortgages bedded in and reducing.

 

[Beanie Girl]

Can we buy? Can we buy? We have 310K+ in the super fund!