For those of you who love a good rollercoaster ride, the share market has certainly been delivering this year. But for a growing number of investors, property is now becoming a key component of their retirement planning.
Apart from constant regulation tinkering from the government, adding property to a self-managed super fund (SMSF) is growing in popularity. Even market commentators cannot deny the successful comparative performance of property over shares, stating investors would have been better off in property during 2015.
Of course, we need to set aside the fact that this kind of general comment is extremely misleading – there are some people who haven't done well with property over the past few years (hello Moranbah, some suburbs of Perth, plus a range of other previous hot spots).
Let's also feel sorry for those people who purchased properties through their 'financial advisor' who was actually just pushing over-priced new stock onto their unsuspecting 'clients'. Those people won't even realise their mistake for a year or two.
The fact is, with a reasonable amount of due diligence, purchasing property in an SMSF structure can be a good strategic financial choice however it is not suitable for everyone. So the first step is to determine if an SMSF is right for you.
If it's not evident already, we are not financial advisors. The best professionals to advise you on structures (SMSF, trusts etc) are qualified, reputable financial advisors or accountants. Just make sure you check their qualifications and be wary of those who dangle nice shiny 'easy' property right next to the structure agreement.
A good advisor will be able to establish your fund within approximately three months. From there, you should have an understanding of your budget, goals and your responsibilities in managing the SMSF.
From our experience, the majority of SMSF related issues arise when structures or finances have not been established correctly. So, when you have your structure in place, be sure to speak to an experienced broker to organize finance before you set your heart on a purchase.
Most brokers we speak to are currently still lending at the 80% mark, but say SMSF property purchases work best if you can cover 50% of the purchase then (ideally) let time, rental income and future super contributions boost your balance.
The good news is that there are ways to dip your SMSF into the property water gradually. Options include a range of 'indirect' ways you can add property to your SMSF – such as property or real estate trusts. Be careful to consider these as you would any investment by checking performance, fees and hidden charges.
If you want to buy direct for your SMSF – which is what we do for our clients – you may be surprised by the range of property types you can choose from. Categories include:
Next, it's just a matter of what works best for you and your targets. The whole SMSF space can be tricky, so a little more than usual common sense will be required although it will be worth it in the end. Outlined below are some key pointers to use as a guide when working your way through the process.
Consider your options and do your numbers. SMSFs can be an expensive nightmare if used incorrectly, however with a little effort you will be well on the way to owning a source of continuously replenishing income. Choose your property targets wisely and you won't have to deal with the issue of running out of money before you run out of life.
PS : Professionals require a Real Estate Licence in order to legally provide you with advice on property, so check your advisors' qualifications before you make any solid decisions.