Would you like to have property investments in your super fund?

Graeme Salt

Not a day goes by without someone talking to me about a loan to buy a property as their long-term retirement strategy. Frequently, their proposal is to hold this property within their Self Managed Superannuation Fund (SMSF). But is this SMSF for you?


 


Australians are flocking to SMSFs in droves. Almost a third of the assets in the nation’s $1.58 trillion superannuation pool are held by SMSFs. My wife and I have had an SMSF for years – we have found it very satisfying choosing where our investments should go. And with total SMSF assets now at $496.2 billion, it seems that many other Australians agree.


 


The growth in SMSFs received a real kick in 2007, when Super Funds were allowed to borrow for investments. Many Australians chose to borrow so they could buy investment properties.


 


But, it is not a simple thing to do and investors need to ensure they are surrounded by a team of professionals so the fund and its investments are set up properly.


 


Property and SMSFs are the big thing at the moment. One bank told me the other day that Self Managed Super loans are now one-tenth of its mortgage business. But, the banks tend to be more cautious with SMSF loans than with other loans – because they are dealing with people’s life savings. As a result, they will need to see evidence that someone has been advised by an accountant and/or financial planner on a particular investment strategy.


 


Because they take a more cautious approach, the banks will lend far less on a property in Superannuation than if it were just a straight-forward investment property. In most cases, the banks will only lend up to 70 per cent of the value of a property. There is a handful that will lend up to 80 per cent of the property value – but it is a long way from the 95 per cent lend for normal investment properties; ASIC and the banks do not want to see people’s retirement nest eggs getting into too much debt.


 


As your Super is an investment for your retirement, whatever profits it makes must remain there. So, if you are looking for your Super investments to raise cash for your current lifestyle, SMSFs are not for you. Most of the clients with whom I work on SMSF investment loans choose to invest in a low-risk property with stable income and which is predicted to have solid capital growth. Their plan is to reap the rewards in 10 or 20 year’s time when they come to retire.


 


 So, if you are worth thinking about borrowing for your SMSF strategy, give it some serious thought. Many have made good investments this way, but it is not a simple thing to do. If you want to talk about SMSF and property loans, please feel free to contact me on 0457 755084 or graemes@originfinance.com.au