However, almost almost two in three eligible Australians don’t have an SMSF – and one key reason is because they lack the knowhow.
At InvestorKit we recently launchedThe Evolution of SMSF Property Investing research report and we were surprised to see a staggering 65% of those eligible for a SMSF (with a superannuation balance greater than $200K) do not have one. That means millions of Australians could be missing out on investment opportunities. This is despite less than 48% of respondents saying they are satisfied with the performance of their super funds and 95% of SMSF holders saying they would start one again given the chance.
Property – both home ownership and property investment – is by far the most popular pillar for wealth-building in Australia, but there are fewer SMSF property investors than you’d expect given its status. With more than three in four respondents indicating they would invest in property today if they had a deposit available, what is stopping SMSF holders from investing in this asset class? When asked, respondents gave answers such as: "Because I don’t know how to do it"; "I don’t have enough information on it"; and "I don’t understand how SMSFs operate."
This illustrates a clear gap in the market to demystify this powerful investment tool. Building awareness of and providing better education on SMSFs will help Australians take control of their retirement and build lasting wealth through this alternative pathway to property ownership.
Leveraging an SMSF to buy property
Using an SMSF to invest in property works slightly differently to a standard mortgage; lenders operate using different rules, for example relying largely on rental income and fund contributions from your employer or business.
Furthermore, if you own your own business, leveraging your SMSF may allow you to invest in commercial property, which your business can then pay rent on, so the rental yield directly funds your retirement, subject to your accountant's advice.
Here are a few other things to know:
- Start with a solid foundation of at least $175k-$200K+: This balance should cover the property purchase price and associated costs. It also ensures your fund has the capacity to manage ongoing expenses without jeopardising its overall performance. It will also give you some leeway to diversify your portfolio so you can benefit from a mix of investment types.
According to InvestorKit research, 3 in 5 households have a superannuation balance of $200,000 and are eligible for an SMSF
- Seek professional advice: A financial planner or accountant can give you a detailed overview of your position according to your current financial situation and capacity to invest. This will depend on factors including your income, other investments and expected retirement age. Ask questions about what’s involved, including costs and obligations, and weigh up the pros and cons according to your situation and your risk appetite.
If you do go ahead, a mortgage broker and/or buyers agent can help you understand your options, spending capacity, and where and when to buy, plus negotiate the best deals when it comes to financing specifically through the SMSF channel.
- Adapt a horizon view: Just like wealth-building for retirement, property investment via SMSF is a long-term strategy so expect slow but steady growth. You can’t leverage equity the same way as in a personal property investment, so buying properties for quick gains is not a recommended tactic. Instead, keep renovations to a minimum and maintenance simple because funding major work comes directly from the SMSF. This may also affect the kind of property you should look to invest in and the condition it’s in – avoid cost-heavy fixer-uppers or the 'renovator’s delight'.
Survey respondents who do invest in property via SMSF note reasons such as comfort in leveraging returns from property, security, and "confidence in the ability to pick growth within the asset class compared to other asset classes." The benefits have been fruitful for building wealth in super while participating in Australia’s favourite investment segment.
Given the current economic situation, the banks are understandably tightening their lending criteria. Regain control of your retirement plans and take the opportunity to learn and benefit from SMSF property investment, which is treated separately to a standard mortgage. This alternative and viable pathway for property ownership should serve you well into the future.
Looking to take control of your retirement? This table below features SMSF loans with some of the most competitive interest rates on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.99% p.a. | 7.01% p.a. | $3,323 | Principal & Interest | Variable | $null | $230 | 70% |
| Promoted | Disclosure | ||||||||||
7.24% p.a. | 7.26% p.a. | $3,407 | Principal & Interest | Variable | $0 | $220 | 70% | Disclosure | ||||||||||||
7.25% p.a. | 7.65% p.a. | $3,411 | Principal & Interest | Variable | $30 | $825 | 80% | |||||||||||||
7.75% p.a. | 7.83% p.a. | $3,582 | Principal & Interest | Variable | $0 | $995 | 80% | |||||||||||||
7.49% p.a. | 7.51% p.a. | $3,493 | Principal & Interest | Variable | $0 | $230 | 80% |
| Promoted | Disclosure |
Picture from Jo Quinn on Unsplash
Harry O'Sullivan
Alex Brewster
