SMSF's and contirbutions

[jaws]

Hi,

I have around $125k in a 'normal' super account and am perhaps looking at buying a 1x1 apartment in Perth approx 1km from the CBD via a potential SMSF with a loan of ~$380k (all inclusive of stamp duty etc). After reading through a number of other threads here, i know there are a lot of things to consider in setting up a SMSF.

Apart from being unsure if it's worth the whole dilemma of setting up an SMSF, or if I'm potentially paying too much for the property (thoughts appreciated here!), I have a simple query which i havent been able to find an answer to: with the whole concessional and non-concessional contributions made to the fund, how is rent received factored in - i.e will this reduce any concessional or non-concessional caps, or is it factored in separately?

Also, someone told me it would cost around $10k to setup a SMSF - what do ppl think about esuperfund as an alternative?

 

[Redwood]

Hi Jaws,

I'll try to cover all your questions.

Firstly, it should not cost $10k to set up and SMSF. Costs can vary depending on whether you obtain a statement of advice or not. Set up for the SMSF with a corporate trustee can be around the $1000 mark and will vary with providers (no SOA) and more with SOA you then need to consider the bare trust set up (Under $2000) which again vary.

Before you set up an SMSF, think about the benefits and risks of SMSF and determine its right for you.

This is where you will need advice particularly with the ins and outs of property within an SMSF. There are a few elements here, including your personal circumstances (i.e super balance), future cash flow in order to service a loan as well as the right property for you (alot of info on this forum to choose the right property yourself). Throughout this process you should receive independent financial advice and credit advice - try to avoid the advisor with a conflict of interest here.

There is a bit of due diligence required as you want to receive the right advice as SMSFs are all about strategy. One strategy is contributions yes. However in terms of rent the income is assessable to the fund separate to concessional and non-concessional contribution cap.

When you take out a loan, you will be paying interest on the loan from the SMSF and rent will be coming into the fund as well as your personal contributions. This analysis will determine your serviceability of the loan (amongst other factors) as well as the purchase price of the property. Note, re stamp duty, in Perth CBD if you are purchasing off the plan there will be stamp duty savings.

In terms of Esuper - they are an online provider - they are our competitors I must disclose, and perhaps good for the 'low frills' approach, however, i'd say based on your situation, you may need more than no frills to develop an effective SMSF strategy.

Hope that helps

Cheers, Ivan

 

[twodogs]

I use eSuper and will be adding one small property sometime soon. The property will make the fund very overweight in that asset class and is not something I do casually. I keep very up-to-date in SMSF rules and obligations and if you are not then perhaps eSuper would not be the best start as there is NO advice, just services (and slightly limited at that). If you have to ask how property works in a SMSF then maybe don't use an online provider at this time.

BTW, their SMSF setup is cheap, and the property loan costs are OK but limited to only 2 lenders.

 

[Paul@PFI]

esuper - The same esuper that ASIC just fined for misleading ads ?
Its not $10K to setup. Full smsf + borrowing $3K++ is typical. Remember that includes SMSF + 2 Companies + bare trust. + advice & support.

esuper are another of the smsf admin firms that seem to often spruik free smsfs for all...That are never free. Whointroduced the property ?? Its valued already isn't it....You smelling the profit motive here yet ? There are many vultures that target-sell SMSF property. ASIC keep warning people.

My best advice is avoid those who claim exceptionally low costs. You will pay in other ways. esuper don't run the SMSF - You will and you will be penalised for your mistakes. You need an adviser and guidance as your post indicates. Sure keep the costs down. But be prepared to pay a little extra for an expert at the other end. Not some cheap processing factory.

I can do a SMSF annually as low as $1100...The only way I could do $700 a year is to outsource processing to an indian etc backoffice. And include nothing. I have years of SMSF strategy experience. My name is Paul. Will esuper give you an adviser who has qualifications & experience ? Ask.

? If you transfer super from the existing fund what impact on life cover ? Close it and you lose it. It may be good + cheap cover. Strategies to retain it ? Cost ?

?What rules impact on transfers if you decide to keep a min balance ?

? Does you employer allow a SMSF for their contributions...A common problem that can really harm loan serviceability.
and so on.......

 

[stumpie]

esuper - The same esuper that ASIC just fined for misleading ads ?
Its not $10K to setup. Full smsf + borrowing $3K++ is typical. Remember that includes SMSF + 2 Companies + bare trust. + advice & support.

esuper are another of the smsf admin firms that seem to often spruik free smsfs for all...That are never free. Whointroduced the property ?? Its valued already isn't it....You smelling the profit motive here yet ? There are many vultures that target-sell SMSF property. ASIC keep warning people.

My best advice is avoid those who claim exceptionally low costs. You will pay in other ways. esuper don't run the SMSF - You will and you will be penalised for your mistakes. You need an adviser and guidance as your post indicates. Sure keep the costs down. But be prepared to pay a little extra for an expert at the other end. Not some cheap processing factory.

I can do a SMSF annually as low as $1100...The only way I could do $700 a year is to outsource processing to an indian etc backoffice. And include nothing. I have years of SMSF strategy experience. My name is Paul. Will esuper give you an adviser who has qualifications & experience ? Ask.

? If you transfer super from the existing fund what impact on life cover ? Close it and you lose it. It may be good + cheap cover. Strategies to retain it ? Cost ?

?What rules impact on transfers if you decide to keep a min balance ?

? Does you employer allow a SMSF for their contributions...A common problem that can really harm loan serviceability.
and so on.......

hi Paul

I have a few questions?

1. is it possible to create an smsf with funds from pre-existing super funds like australian super & GESB? For example; is it possible to combine my wife's and my super fund to create an smsf for the both of us?

2. if above can be done, is it still possible to leave an amount in the normal super fund to service the life insurance and TPD insurance?

3. Assuming the smsf comes up with a 20% deposit for a property, i assume we go as guarantor for the 80% loan? is this correct?

TIA

 

[property_girl]

I am also about to set up a SMSF, but I would not suggest doing the paperwork on your own unless you really know what you're doing. I will be paying someone to do it for me.

This may give you an idea:

http://www.thesmsfreview.com.au/comparison-table-smsf.html

 

[stumpie]

I am also about to set up a SMSF, but I would not suggest doing the paperwork on your own unless you really know what you're doing. I will be paying someone to do it for me.

This may give you an idea:

http://www.thesmsfreview.com.au/comparison-table-smsf.html

i've got no intention of doing it myself just need to learn more about it.

 

[Terry_w]

hi Paul

I have a few questions?

1. is it possible to create an smsf with funds from pre-existing super funds like australian super & GESB? For example; is it possible to combine my wife's and my super fund to create an smsf for the both of us?

2. if above can be done, is it still possible to leave an amount in the normal super fund to service the life insurance and TPD insurance?

3. Assuming the smsf comes up with a 20% deposit for a property, i assume we go as guarantor for the 80% loan? is this correct?

TIA

1. yes
2. yes.
3. not necessarily. I recently got a client 80% LVR with no personal guarantee.

 

[knightm]

Jaws,

These guys are good at what they do. Whether you use them (ie the likes of Paul, Terry etc) is completely up to you (no I am not on their payroll) - but please don't penny pinch when it comes to your SMSF. It needs to be right. I just set mine up with a local firm who have 150+ super funds under their belt (and are auditors) and I am satisfied they know what they are doing. I didn't choose it based on fees. I wanted it to be done once, and never to be in the awkward situation where the tax office has shut down my cut price firm that set me up and I am answering their questions as to why I set it up wrong. There are plenty of things worth outsourcing to India. This in my view is not one of them.

End rant.

 

[Paul@PFI]

There is far more to a SMSF property strategy than just loan approval and setup costs. Its a financial decision and if its poorly done it will harm your super savings. Your choice of a SMSF has to consider life insurance (you may lose cover available through an industry fun at low cost), lifestyle changes (spouse pregnancy may affect contributions etc) and many other issues. Bailing out a SMSF isn't easy if the rent stops.

I do see people with ideas of gearing using their super and that's usually first warning sign. If the net rent less interest is negative for cashflows then the fund must rely on contributions. These can be consumed and leave the fund solely reliant on capital appreciation. Lower levels of gearing are often needed and 65% gearing is not uncommon. There needs to be a liquidity and a cash reserve buffer.

Remember too that any profit, growth etc is all preserved. It can double in value and there is little you can do about it until your retire. For many SSers that contradicts their strategy.

 

[redwing]

Hi All

Whilst e-Super is taking a bit of a kick, any thoughts (good or bad) on SuperPlus

Fees are quiet low also - see pricing

 

[Paul@PFI]

As a long term experienced practitioner I see stacks of these admin services. Many don't last long. Some are truly appalling. Its like looking at a Great Wall ute if you are a tradie. Their offer is based on lower cost. If they were operating as surgeons would you want a well respective leader in the field who is in high demand for their time or a unnamed practitioner who proudly boasts about being cheaper ?

I wonder how they advise on financial matters ?? Like starting pensions, rollovers etc. All part of the SMSF strategies that make them highly valued. No AFSL makes all the financial aspects a bit like a one armed boxer.

 

[Redwood]

As a long term experienced practitioner I see stacks of these admin services. Many don't last long. Some are truly appalling. Its like looking at a Great Wall ute if you are a tradie. Their offer is based on lower cost. If they were operating as surgeons would you want a well respective leader in the field who is in high demand for their time or a unnamed practitioner who proudly boasts about being cheaper ?

I wonder how they advise on financial matters ?? Like starting pensions, rollovers etc. All part of the SMSF strategies that make them highly valued. No AFSL makes all the financial aspects a bit like a one armed boxer.

Esuper has an AFSL - they know what they are doing believe me - they are a well oiled machine and do it well for the no-frills approach.

Their offer is based on a 'chain' that is you can only bank with ANZ, you can olnly trade with x, you can only get a loan from x.....this is for good reason, that is commissions and admin efficiency.

Their fall back is if you have a question - good luck getting a quick answer, thats where fixed priced administrators have a competitive advantage but struggle to maintain costs. We do not and WILL NOT offer free set up as all funds are set up with a corporate trustee, many of ESupers funds are individual trustee as trustees do not receive advice on establishment - a pitfall for the member in the long term.

As an FYI - we have one transfer per week from Esuper - after their first year is over and generally when they want to buy property.

Cheers, Ivan