Property investing with super.

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Uri, 13th Apr, 2017.

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  1. Uri

    Uri New Member

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    Hi. I leave in NSW and considering buying an investment property for around 300k. I have no savings, a current morgage of 345k (in my name only) which is evaluated at 530k and 36k in my superannuation. I know property investment is possible with self managed super but since I don't have enough for 20% deposit I was wondering what some of my options are? Can I use my house equity along with my super to buy an investment in NSW. And if I can, will all tax deductions be the same as a regular investment?
     
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  2. BillV

    BillV Well-Known Member

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    Hi Uri

    Why no savings?

    In theory you could do something creative, like create your own self managed super and then withdraw equity from your current house and then put those funds in your super as personal contributions but its not a good idea.

    Given the high level of property prices I would not be entering the property market now (even Woolongong is expensive). What were you thinking to buy?
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    $36k isn't enough to buy in super, but you may be able to use equity in your current property as a deposit for your purchase.

    Billv raises a good point though - if you've got no savings, investing without some kind of cash buffer is unwise, as things come up all the time and you'll have nothing to fall back on.
     
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  4. KayTea

    KayTea Well-Known Member

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    There are a number of experts who recommend that, in order to make the setting up and running of an SMSF worthwhile (especially from a financial perspective), that have a minimum of $200K already in super is a good place to start from.

    While I started with a little bit less than that, I certainly don't think purchasing a property through an SMSF, with only $36K, is achievable. The costs involved with purchasing an IP through a SMSF are much higher than those associated with buying a property in your own name.
     
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  5. BillV

    BillV Well-Known Member

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    This belief is generally derived from the comparison of management fees vs accounting fees.
    A super balance of $200K is likely to have management fees of 1.5% or $3K per year.
    A SMSF will have accounting fees between $1-3K per year.

    Plus in super, the -ve gearing advantages are lower and the loan interest rate will be higher.
     
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  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    There's an increasing amount of noise coming about the likelihood of the govt changing the rules (again) to ban SMSF's from borrowing to invest in real estate - part of their drive to reduce the "rampant" demand for investment properties and improve housing affordability.

    Unlike other approaches to addressing these affordability issues such as allowing people to draw down on their SMSF to fund their first home or attacking negative gearing - both of which have massive potential unintended consequences to changes ... stopping SMSF's from borrowing (something they've only recently been allowed to do anyway) is a relatively risk free approach for the govt to be seen to be "doing something" about it even though I doubt it will have a material impact on affordability.
     
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  7. BillV

    BillV Well-Known Member

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    Simon IMO it will help a lot, let's hope they do it
    My super is fully in cash atm, sold my IP to a developer and waiting for better days :)
     
  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    I'm just not sure how many people are actually buying property via a SMSF? As in - I'd like to see a breakdown of what % of investment property purchases are via SMSF?

    Also - I think there are very legitimate and useful uses for purchasing property via an SMSF, in particular, the (related transaction) loophole which allows you to purchase a business premises for your company via your SMSF - it would be very disappointing if that were to be removed (and doesn't have an impact on housing affordability).
     
  9. BillV

    BillV Well-Known Member

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    Yes good point
     
  10. SMSFCoach

    SMSFCoach Member

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    Uri, you should take the advice above about building a cash buffer and your superannuation before taking on any investment. Also make sure you cover the risks of it all going wrong if you are ill or injured through insurance via super or outside. Long term it might be useful to understand that you can but a property in partnership with your SMSF. Understand that negative gearing is not great in an SMSF where tax is capped at 15%. I think you should start budgeting and regular saving to see what you can afford in terms of managing debt with a goal to possibly buying a property later. If you are determined to look at property then maybe look at Bricxx or Domacom where you can do fractional propert investment. This is not a personal recommendation just pointing out the alternatives.
     
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