Should I setup a SMSF?

BelezaPura

BelezaPura

Hi All

I am considering setting up a SMSF to invest in property. However, before doing so, I would like to get your opinion about a few points. First my situation:

Wife and I have around 115,000 in super (combined) and are both 41 years old, which means an investment horizon of over 20 years.

I keep hearing that if you don't have A LOT of money, then it is not worthwhile to setup a SMSF due to the costs involved.

What is your view on that? Is 115,000 too little for a SMSF?

Another consideration is the fact that I have my life insurance through my current fund. Could I keep this fund after setting up a SMSF for the purposes of insurance?

Finally, to complicate things a little bit, there is a good chance that I will be moving out of Australia for a period of 2 years to work overseas. During this time my employer will not be contributing to the fund. I assume that would not be a problem provided the property is cash flow neutral or positive.

Do you agree?

Any insights will be much appreciated.

Thanks
BP
 
By the ?'s you are asking I would suggest doing plenty of homework on investing in SMSF. Here is a bit of a crash course in random order:

1. You can borrow up to 80% of the property value and less with other lenders. so with a deposit of $115,000 you are looking at a property purchase of approx $480,000.

2. Be careful not investing all your funds in one investment class- diversify

3. If possible take out an SMSF investment loan that has a linked offset account and then go on an IO loan. This strategy allows you to accumulate funds quicker to set you up for further purchases.

4. Set up costs (of the SMSF) are approximately $3k-4k. Then you need to by law audit the SMSF once a year which will cost you around $500.

5. Cannot borrow to renovate

6. Entry fees for the SMSF Loan are around the $2k mark so a bit more expensive than 'normal loans'. Interest rates are also a little higher.

7. Like normal super contributions - there is a annual limit to the maximum amount of employer/employee contributions.

8. Make sure you deal with an Accountant who knows what he/she is doing and has experience in dealing with SMSF set ups. If you stuff this up then the ATO will nail you.

That's a bit off the top of my head to get things rolling.

Regards

Shahin
 
$115,000 isn't too little - seen plenty of people do it for less. Just means you have to keep your compliance costs down and earn a decent return (which you should do anyway).

For your life insurance it is a bit complicated. Need a financial advisor to tell you about this.
 
I seen a post on invested.com.au where someone was wanting to set a SMSF up wit $8k and trade options.

It is not all about the money, but about control and estate planning issues too. Also about return. Can you make more in the SMSF after fees than your old fund was making.

Good idea to keep the old fund going with the insurance.

If going overseas there will be extra things to consider as your fund may become non complying if you are not a resident. So you may have to appoint an enduring power of attorney who will need to replace you as director of the trustee company. This has added risk as they could stuff things up and/or steal your SMSF money.
 
Terry_w said:
I seen a post on invested.com.au where someone was wanting to set a SMSF up wit $8k and trade options.

It is not all about the money, but about control and estate planning issues too. Also about return. Can you make more in the SMSF after fees than your old fund was making.

Good idea to keep the old fund going with the insurance.

If going overseas there will be extra things to consider as your fund may become non complying if you are not a resident. So you may have to appoint an enduring power of attorney who will need to replace you as director of the trustee company. This has added risk as they could stuff things up and/or steal your SMSF money.
Click to expand...

Some good points raised. Mainly the heads up about the risk if going overseas.

So there is no restriction regarding keeping the old fund operational for insurance purposes?
 
BelezaPura said:
Thanks for the info!



Is $500 all I would have to pay to keep compliant per year?
Click to expand...

Im an accountant and this comment is stupid. The costs of transaction fees, accounting and tax have all been ignored. Also Asic fees for trustee and smsf levy now $300. $115k is far to little to be cost effective as an investment strategy without significant gearing risk. A Licensed adviser would be unlikely to recommend this view.
 
Hi :),

Can I please revive this thread and ask you why you think it is a bad idea?
We are in a very similar situation to the OP and have been advised to set up an SMSF to purchase a property by our financial planner.
 
Why is it a bad idea Trebor? as per Shahin's response - you need to have some diversification of investment, it is not an all the eggs in one basket situation - ATO is cracking down on this based on recent articles in the Aus Fin Review.

You SMSF must have an investment strategy - 90% + into property is not a diversified fund, so doesn't spread risk adequately.

With high compliance costs (as pointed out by PaulG), your returns will be hammered considering most properties will return less than 5% gross and would be heavily negatively geared.
 
Do you have any thing else to add into the SMSF such as shares or cash?

Personally, we waited until we had over $300K worth of assets.

It takes a lot of effort to set up and maintain a SMSF so I would recommend get in as much reading as you can to get a good understanding of your situation and what is involved.

Then go and see a good financial planner to talk through your options.
 
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