Is property in Super a good idea?

[jeromanomic]

I just read this post about SMSF Loans:
[self promotion URL deleted]

wondering if you think it's a good idea to buy residential prop in super, and if so, how much money do you need in super before you should consider it?

 

[Scott No Mates]

Enough not to be making a loss.

 

[BV]

Enough not to be making a loss.

Loss is not a problem as long as it is identified in your investment strategy and it is sustainable.
A loss of 1% or 2 % on a deposit of $100K for a few years is $5K-$10K
but a few years later you'll be enjoying the +ve cash flow in addition to the capital gains.

However, if someone has a lot of super, they can park some of it into the property's offset account and make the property cash flow neutral or cash flow +ve.
(They will be saving 5% interest so their cash is effectively making them 5%)

5% returns are great in times like today where term deposits earn very little

 

[pickle pickle]

It depends on how long you intend to hold the property.

The way that super rules are at the moment when you are in pension phase you may need to sell the property to meet the min pension requirment. (you could not have enough cash to pay out the pension based on total value of assets).

The deposit required for a limited recourse borrowing (super) is for a corporate trustee 20% of the purchase price plus stamp duty costs. On top of that you need to set-up a bare trust and find a company to act as trustee for the bare trust (banks insist on corporate trustee for bare trusts, while SIS act does not speceifically say you need a corporate trustee)

Buying residential property into super is another strategy to buy an INVESTMENT residential property (as you may have access to funds), but having a property in super you cannot use that property to go and borrow more funds. IE. the property can't cover a deposit shortfall for your next property.

 

[Terry_w]

If you think it is a good idea to hold property outside of super then it would generally be a good idea to hold in super.

A SMSF can borrow up to 80% LVR on an IO basis with an offset account. Good yielding growth property would be almost cashflow positive or positive after tax. This means the SMSF pays the deposit and you sit back and wait 20 years. It will probably pay itself off within 15 years with rents increasing.

A SMSF can negative gear, so depreciation etc can mean there is a loss in the fund which can then be used to offset tax payable on contributions.

A SMSF can also negative gear personal income, indirectly, by the member making a deductible contribution to the fund, in some instances, and claiming a tax deduction/salary sacrifice.

You would generally need $200k plus inside super to make this worthwhile.

 

[Shahin_Afarin]

Max LVR within an SMSF is 80% for residential lending and less for commercial. So you will require at least 25% to purchase. This should dictate your budget and thus areas you can purchase.

A common strategy for business owners is to purchase a commercial property and then rent it out to themselves. Developers also purchase within an SMSF due to the taxation benefits however they do of course using cash and not borrowed funds.

 

[see_change]

It comes down to the choice of property and the timing of the market .

We had a commercial property which we owned 50 /50 with our super . Good return but crap cap growth . Starting about 3-4 years ago we started buying residential property , first in Sydney and then in Brisbane . We now have 4 . The aim is to try and pay these off as much as possible in the next years .

The amount you can put into super has increased , so it will through a combination of contributions , increasing rent , additional contributions via profits from property investing outside super.

The aim will be to keep the properties as long as possible , but as noted previously , we will probably need to sell some to keep in line the distribution rules .

If we cashed up all our non super property we would come close to being able to pay off the super debt . You can do additional contributions of 450k every three years per member , but my aim is to try and keep a significant non super portfolio as you really never know what changes will happen to super in the future .

We used all the money in our fund to purchase the properties . I wanted to do it in case future changes limited what you could do .

As the Sydney market has done well recently and brisbane moving to a lesser degree ,with the gearing our super is doing very nicely .

Cliff