using super to buy a house

[greedy2000]

Firstly you can purchase a house through superannuation and borrow to do so, but there are a few rules you need to be aware of.

- You’ll need to start a SMSF (which is more expense to run fee wise than an industry or retail fund)

- You’ll need at least a 30% deposit to purchase the property if your are borrowing (most major banks will do this lending just ask).

- The bank will also want to make sure that your SGC contributions are enough to meet the loan repayments.

- You’ll also not be able to live in the place ever, or access any of the potential capital gains until you retire.


Secondly in SA for instance if you work for the Govt. i.e. you are a teacher, police office, public servant, nurse, fireman etc. you don’t get choice of super, you have to invest in the Super SA fund. There would be similar fund if you worked for another state government. The bank lending you the funds may have a problem with this.

There are some advantages though, it’s a very cheap fund fee wise, the insurance offered is also very cheap and contributions tax is only debited when you withdraw your funds (or retire). Also the contribution levels don’t apply so you can salary sacrifice in excess of the $25K cap for people <50 years old and more than the $50K for people > age 50.

You can transfer a portion of your fund to any other super fund / SMSF at any stage but be aware that your insurance benefit is not transferable, so you’ll need to leave a small balance in your Govt fund if you wish to keep it going. Also note that contributions tax will be levied when you exit. So expect to lose up to 15% of your transferable funds.


So provided you have a sufficient balance in your super and earn enough that your SGC contributions and rent cover the debt you should be able to do it.


However does it meet your goals? Probably not…

Your main goal seems to be to be stop paying rent and purchase your own property as cheaply as possible.

Whilst this strategy is a very tax effective way to purchase a property, as you’ll not be able to live in it or access any of the gains until you are retired. It doesn’t meet your main objective.

Frankly I don’t really see what is wrong with what you are doing now. Having Investment properties and living in a rented place is a very decent strategy.

Why not just try and direct any excess funds into paying down some of your investment loans, eventually build some equity and then sell down those properties in the future to buy a PPOR or something like that.

If you can’t afford to do that well I’ll probably suggest you can afford to purchase your own place.

Or as someone else suggested rent a cheaper place or move into a share house….

 

[greedy2000]

My apologies for hijacking the thread, I just have one main question: I have only about $30k Super from working full time for 10 years, Am I able to somehow pull this and purchase a property with it?

I don't see Super doing anything for me because our 2016 retirement plan is our Super and more. I'd be 1000% better off buying another property with this money as we all know. Is this possible for me? If so, where do I sign up?

Thank you.

Mate due to the 30% deposit required you're stuffed. Unless you can find a good property for $100K. if you do let us all know because I'll buy 10 and I'm sure so would everyone else!

 

[investor2009]

Oh, well bye bye to that idea then. It will continue to be a terrible investment fund that I'll completely forget about until one day after 67 I'll use it as pocket money.

 

[wylie]

Oh, well bye bye to that idea then. It will continue to be a terrible investment fund that I'll completely forget about until one day after 67 I'll use it as pocket money.

Which is not so bad surely...

 

[Sheryn]

Hmmm thanks Terry. I'm quite enthused about this because it really suits our goals to a T and I've always seen Super as such a crappy investment. I don't know where to begin with this.. How do I pull it out? I really don't know where to start. Is someone able to point me in the right general direction?

Investor
When I younger I did not have a good working knowledge of super and neither did my parents and nor does my husband. When I was 40 I started looking at what I needed to retire early as I was sick of shift work so slowly started educating myself about super, shares and property and having a go at all three!

1. Super is not a crappy investment especially if you control your super - start reading, talking to people who run their own SMSF and learn more about super. Personally I am staggered at the number of professional intelligent people around my age (55 years) who have no idea about super nor the income producing assets they need to acquire outside of super to maintain their lifestyle.

Currently one of my friends who has a large residential portfolio (15 IP's+) is selling off some of their properties slowly outside of super, paying CGT as needed and rebuilding inside super. There are restrictions on how much you can put into super. At a future date I will do this too.

2. Depending on what you plan to use your super for (property [commercial or residential, shares, cash], you need at least 200K in super so that the fees to run/audit a SMSF are not to horrendous.

3. Super is more appropriate later in life when you can access via a Transition to Retirement Income Stream (TRIS) especially in my example where I can access TRIS at 55 years of age instead of my retirement pension age of 67 years.

4. Of course there are some disadvantages...there is a free newsletter you can access at the below link

http://www.superguide.com.au/


Regards
Sheryn

Oh, well bye bye to that idea then. It will continue to be a terrible investment fund that I'll completely forget about until one day after 67 I'll use it as pocket money.

The multitude (herd) do as you have decided to do above, a smaller percentage of people learn/plan how to use super to their advantage rather than let the superfunds control their money for 45+ years and scoop the cream of the top.

 

[buster]

Hmmm thanks Terry. I'm quite enthused about this because it really suits our goals to a T and I've always seen Super as such a crappy investment. I don't know where to begin with this.. How do I pull it out? I really don't know where to start. Is someone able to point me in the right general direction?

Super isnt an investment per say it is the vehicle or structure most investments you can do outside super you can do inside super. The problem with investing 30k in a smsf is the fees would probably be higher than the returns. If you like property why not gear it up on a platform, you should be able use 12k to buy 60 k worth of property in an indexed property fund. Been getting 12% return or 60% ROI Buying property in a super fund doesnt make property a crappy investment.

 

[investor2009]

Ok, lets get this straight. I stand by my opinion because:

1. Super is not leveraged, so grows extremely slowly, especially at first.
2. Buying even ONE investment property will generate much more than a Super fund started from nothing. And in a much faster time.
3. It is not the investment vehicle of choice for low/middle income earners like myself.

Super's great for 95% of the population who have no idea about investing and are happy with a few hundred thou to live on after they retire before switching to welfare. And thats IF they could hack 50 years of full time work. Or perhaps for the person who likes to contribute his own hard earned money into to boost it.

For me, Retirement is set for 2016 at 38 so I require a much faster way of generating these funds.

 

[wylie]

Then just leave it be, and use it to buy a loaf of bread in 2016

 

[Terryw]

Ok, lets get this straight. I stand by my opinion because:

1. Super is not leveraged, so grows extremely slowly, especially at first.
2. Buying even ONE investment property will generate much more than a Super fund started from nothing. And in a much faster time.
3. It is not the investment vehicle of choice for low/middle income earners like myself.

Super's great for 95% of the population who have no idea about investing and are happy with a few hundred thou to live on after they retire before switching to welfare. And thats IF they could hack 50 years of full time work. Or perhaps for the person who likes to contribute his own hard earned money into to boost it.

For me, Retirement is set for 2016 at 38 so I require a much faster way of generating these funds.

Super is a structure remember - it is actually a trust structure with legislation governing it.

Super can be leveraged - you can but a house in your SMSF by using 20% deposit for example.

Super is also a tax efficient structure. Imagine if you could build up a portfolio in there and then receive the rents tax free upon reaching retirement age.

Super is also the most efficient asset protection vehicles - if you go bankrupt the super is usually untouchable.

 

[wylie]

If we transfer a house into our super fund (we would set up a SMSF), we would pay capital gains tax but it sounds like we would then get all income rent free once we retire. Rent on one house would not amount to much tax, but multiply it by a few houses, and it gets more interesting.

Paying CGT will hurt, but we will pay it one day when we sell, so transferring the house, paying CGT means the cost base is reset and we will not pay it twice if we sell down the track.

Something to think about...

 

[Terryw]

If we transfer a house into our super fund (we would set up a SMSF), we would pay capital gains tax but it sounds like we would then get all income rent free once we retire. Rent on one house would not amount to much tax, but multiply it by a few houses, and it gets more interesting.

Paying CGT will hurt, but we will pay it one day when we sell, so transferring the house, paying CGT means the cost base is reset and we will not pay it twice if we sell down the track.

Something to think about...

Don't think you can transfer residential property you own into a SMSF. Business real property would be ok, but not residential.

 

[wylie]

Thanks Terry. Just getting my thoughts together to see where we head next.

Hubby isn't working, and might decide not to go back, so we need to look at how to structure what we have to suit our very changed circumstances going forward.

 

[Terryw]

hi Wylie

You could always sell a house or two and make a contribution to super - it possibly be done in a way to minimise CGT. Then the SMSF could borrow to buy another house.

The costs to do this may be high, but it could save you heaps of tax over the long run.

 

[investor2009]

Thanks Terry, it certainly does have it up's for some people.

My Father was able to purchase property through his SMSF and he pays little, or no tax on rents, and gets special rates or nil tax when selling or something. Worked out very well for him and he retired not long ago at 55. He used the profits from his business to plough into the fund at a rate of $100k per year and the rest went into paying off his properties. One day he just packed up and left.

Super is a structure remember - it is actually a trust structure with legislation governing it.

Super can be leveraged - you can but a house in your SMSF by using 20% deposit for example.

Super is also a tax efficient structure. Imagine if you could build up a portfolio in there and then receive the rents tax free upon reaching retirement age.

Super is also the most efficient asset protection vehicles - if you go bankrupt the super is usually untouchable.

 

[BMan]

if my father is looking at buying a house with about 5 years or so until his planed age of retirement
what would be best? is there any point setting up a smsf? not that he would anyway as hes uneducated
he wants it paid off before he retires,

whats his best option

 

[Van Persie]

Investor
you need at least 200K in super so that the fees to run/audit a SMSF are not to horrendous.

Hi,

I've heard through a friend who's been running his own SMSF that saying the above is a lot of rubbish.

It should only cost you 1500 through your accountant plus 400-500 in auditing fees.

The explanation is that if you're running a SMSF, it is just that, a SMSF. It is not a Managed Super Fund where you don't have control over the reinvestment of dividends and fund allocations.

I just wanted to make the point as from what I understand it is not true.

If you buy into multiple managed funds within your SMSF or trade regularly, or use a broker to buy and sell for you, then the above statement may be correct.

Cheers,

VP

 

[Sheryn]

Hi,

I've heard through a friend who's been running his own SMSF that saying the above is a lot of rubbish.

It should only cost you 1500 through your accountant plus 400-500 in auditing fees.
The explanation is that if you're running a SMSF, it is just that, a SMSF. It is not a Managed Super Fund where you don't have control over the reinvestment of dividends and fund allocations.

I just wanted to make the point as from what I understand it is not true.

If you buy into multiple managed funds within your SMSF or trade regularly, or use a broker to buy and sell for you, then the above statement may be correct.

You are not allowed to trade regularly in a SMSF as that is classed as running a business, you can buy shares and sell some but not trade regularly!


Cheers,

VP

VP

Fact is....

If you only had 30K in your SMSF earning say 5% interest per year in a term deposit (to keep it simple as I know you could get say 5.8% atm but IR are going down IMHO)

30K x 5% = $1500 dollars interest earnt from a term deposit per year - reality is you will pay your accountant $1500 + $400 (as quoted by you above).

30K x 5% = $1500 - $1500 accountant fees = $0 - $400 auditors fees = -$400 per year.


This means you would go backwards $400 dollars per year, that is why you need at least 200k in a SMSF.

200K x 5% = 10K - $1500 accountant fees = $8500 - $500 auditors fees = $8000 return per year.

Hope I have explained it clearly enough that if you start a SMSF with a small amount eg. 30K the fees will eat up your return.


Regards
Sheryn

 

[redwing]

You cannot live in a house your SMSF owns.

I didn't think you could even sell a property you own to your SMSF either (except commercial IP's)

 

[Van Persie]

VP

Fact is....

If you only had 30K in your SMSF earning say 5% interest per year in a term deposit (to keep it simple as I know you could get say 5.8% atm but IR are going down IMHO)

30K x 5% = $1500 dollars interest earnt from a term deposit per year - reality is you will pay your accountant $1500 + $400 auditors fees (as quoted by you above).

30K x 5% = $1500 - $1500 accountant fees = $0 - $400 auditors fees = minus $400 per year return per year ( A SMSF with fees to run higher than return made is horrendous IMHO).


This means you would go backwards $400 dollars per year, that is why you need at least 200k in a SMSF.

200K x 5% = 10K - $1500 accountant fees = $8500 - $400 to 500 auditors fees = $8000 return per year.

Hope I have explained it clearly enough that if you start a SMSF with a small amount eg. 30K the fees will eat up your return as you are undercapitalised.


Regards
Sheryn

Hi Sheryn,

Agreed on all you mentioned.

The point I'm making that alot of people don't realise is that those fees should roughly stay around $1900-2000 p/a whether you have 30k in or 3million in there.

What most see and think is,

"Well 1.5-2% annual management fees aren't alot". No they're not when you're working with 30k.

When you're looking long term and have 800k in your super with 1.5-2% fees, all of a sudden you're looking at 12k-16k/ year. And that's just for one year.

If you compound this long term over 15-20 years imagine how much less your Super is worth. All of a sudden those $2000 running costs which with 3% inflation etc over 20 years might become (roughly $4000/annum) start looking alot more attractive.

The capital and cash is going to be higher and the dividends and rent that can be reinvested is significantly better.

I'm sure most people are buying experienced Super Managers their expensive holiday homes and yachts.

It can't hurt to cover all possible scenarios.

Cheers,

VP

 

[Van Persie]

Sheryn,

So having said that, I agree it is ideal to have aleast 200k in your SMSF atleast to begin with. The difficulty for many is where to find that 200k initially to put in there.

You can put up to 500k in their annually so it's a very good vehicle for setting yourself up for a comfortable retirement.

Cheers.