Hi everyone

I have been reading the messages on this forum for a while and this is my first message.

Bit of history:

I have been a property investor for around 12 years now (I am 46), and, following my divorce, have ended up with property worth around $1,560,000 (not including my PPOR). Investment Mortgages $605,000. Also have industry super. PPOR will be paid off in around 12 months & my accountant has suggested selling some of the properties & buying others in a SMSF that I would set up, plus diversifying into managed funds through the SMSF (I was planning on putting my mortgage money into managed funds once my PPOR was paid off).

2 questions to you gurus really- firstly, would selling the properties and buying new into the fund (accounting for buying and selling costs) be a good thing to do?

Secondly- I already have a trust fund (although there is nothing in it at the moment, following the divorce)- can I use this to set up a SMSF, or do I have to start again, as I understand the situation, a SMSF is basically a trust.

Looking forward to hearing some wisdom on this- I may have been in property for a while, but I am a complete novice on anything else.

Thanks in anticipation

 

Hi cheekymonkey

I don't know a thing about property, even though all my friends do it. But I do know about index funds. Not too popular in Australia, but it will get there. I can help in this area.




Cheers, Johny.

 

Thanks

Thanks for the advice, it's given me food for thought- will have to do more research methinks!

My super has around $130,000 in at the moment, so it's nowhere near what the properties are worth.

As I should pay off my PPOR in the next 18 months (or a little sooner if Glenn Stevens will ease off the interest accelerator a little!), I need to start thinking about where to put future funds (managed funds, interest, further properites etc.) after that time. I plan to invest what I am putting into the mortgage at the moment, so my standard of living remains the same (around $1000/fortnight). I'm a bit of a squirrel, so it's not too hard for me!

 

Cheeky

I reckon you really need to get yourself educated in SMSFs.

It is probably the ideal time based on your age and recent divorce. I imagine you want a new start and want to protect your future assets?

As Sim said - maybe not sell your existing properties without good reason.

I would suggest sitting down with both your accountant and an SMSF specialist advisor and having a chat - I am not sure there are any up Cairns.

Do some reading (especially InvestEd) and attend some seminars - and ask questions!

SM

 

Thanks

Thanks for that- I am doing a fair bit of research & have a bit of time before I start to diversify. I intend starting in earnest once my mortgage is paid off (mid next year) & I'll have disposable funds (i.e the money I am currently paying into the mortgage)

I'm hoping to regain what I had to give my ex at divorce, in around 10 years & then some. Am looking at a mixture of investment properties & managed funds, so I have a bit of time to research it all.

You're right- there are no registered SMSF managers in Cairns, but that's OK, I can look further south- not a problem. I travel to the Big Smoke (Brizvegas) with work 4-5 times a year at least, so can always fit in a couple of appointments if necessary.

Again, thanks for the advice- really appreciated

 

No worries cheeky - I will post any details of any QLD SMSF educational seminars I know of on here.

SM

 

Hi Cheeky Monkey,

SMSF's have some major advantages, and these mainly stem from the concessionally taxed environment within superannuation.

As the administrator has suggested, there may be CGT issues upon the sale of investment properties. However, the longer you wait the potentially greater this capital gain will be. If you were to own the properties within a SMSF that was in Pension Phase (you may need to read further on this), then income and realised gains will be taxed at 0%. Pretty sweet deal if you ask me..

However, you do have other options...

1) Wait until you retire and are earning less income, meaning you will be on a lower tax rate. Then upon sale, the realised gains (treated as taxable income) may be caught in a lower bracket. You may also consider making concessional contributions (Salary Sacrifice for employees, or personal contributions if you are self-employed) to further reduce your taxable income.

2) Consider 'staging' the sell off of property over different tax years in retirement.

There are also strategies to minimise income in the current years if you are considering selling the properties, and these are mainly the options of super or investment debt (prepaid interest).

The old adage of investment strategy first, tax benefits second, needs to be considered. Never invest or borrow simply for a tax deduction.

Also, I do not agree with the administrator re: using the SMSF for new investment only. SMSF's have running costs, and they are significant as a percentage of Funds Under Management unless you have approx $200k plus in the fund. Even then, it will depend on the type of investments you are making. As such, a new fund with bugger all in it, will still have many of the same fees that a much larger investment would have (auditing etc).

Yes, it is true that your accountant will 'make money' for his/her involvement in the set-up and ongoing maintainence of the fund, I wouldn't let this 'throw you'. My advice to you would be to ask your accountant to explain this strategy in greater detail to you, and why he/she believes it is beneficial.

Also, yes SMSF's are governed by a Trust Deed, however there are MANY different types of trusts. The Deed of an SMSF will vary wildly from the deed to something like a discretionary family trust, as it needs to consider and comply with SIS and ATO legislation. As such, I think you will find that you cannot use the same trust for an SMSF.

Why do you have a trust structure if you aren't using it?

As a side note, you mentioned using the surplus cash flow from your mortgage to invest in managed funds after you pay your mortgage. You may find greater benefit from using equity in your properties as security for an Equity Access Loan to invest, as the interest should be tax deductible for you.

Cheers, Lloyd.

 

Thanks for all the advice- I'm currently researching to the max!

Methinks with all your great advice & some serious googling, I'll get to where I want to be pretty soon!

Cheers

 

Cheeky (and everyone else)

Many accountants, super speciailists and financial advisers normally offer some kinda of discount such as a complimentary or free consultation - it is a normal way for them to generate new business and gain new clients.

I know my company consitently has these special offers.

See if you can find someone who you can meet in person and talk to - you will probably learn a lot more and get more direction from a 1 hour meeting with a good quality (knowledgable and qualified) professional compared to 10 hours of Googling!

You can also ask the questions that Lloyld suggests.

Any experts in Cairns want to volunteer their services?

Good luck with everything.

SM