What You Need To Be Aware Of When Using An SMSF To Buy Property

This is the full transcript of our popular video “The Pros & Cons of Using Super for Property Investment“.

I just wanted to talk to you about something that’s really interesting. We talk to a lot of people and generally what we find is that people either hate self managed super funds or they really love it – there doesn’t seem to be much of balanced view out there about self managed super fund. SMSF is a great vehicle of investment and is a great thing for people looking to take control of their retirement but it is not perfect, it is not back or white and what I wanted to do is just briefly go through what’s really good about it and what’s not necessarily so good and why it might not fit for everybody. So starting with why it might not be good for everybody, the general conversation we have is do I have enough money in Super, have I accumulated enough Super to start a self managed super fund? If you read the papers from the ATO and you read what’s online about it, there’s a lot being said about ‘you need 150K in Super’, ‘you need 200k’, ‘you need 500k’ – various people have various opinions and that’s something that’s being discussed at length. What’s not so much discussed are the other reasons you might not want a self managed super fund.

It will require time investment from you. You can’t have a self managed super fund and not invest time.
It will require you to make decisions. Sometimes difficult decisions. How are you going to invest the money, what are you going to buy with your investment savings. So there a re lot of things which you not necessarily have had to consider so far which are now going to be your problem. And that happens with self managed super funds. There are going to be decisions in regard to estate planning, to insurance. So there’s a lot of time that is required.

There’s also potential liabilities. If you make an error, if you break the rules you are going to be liable for penalties which are potentially quite substantial. So you are going to have educate yourself and you’re going to have acquire some level of financial literacy to run the self managed super fund.

So of course you can lean on your accountant, you can lean on your financial planner, you can lean on people like us for the lending, but when it’s all said and done the final decisions are going to be with you and the consequences of those decisions are going to be for you to enjoy or to suffer. So these are things that need to be considered before deciding to go into a self managed super fund.

Why would you put yourself through all of these things and take those risks and potential liabilities? Because it’s a fantastic vehicle. It will give you control over that money which is yours and you will be able to invest with it as you see fit, not someone in a high-rise in Sydney or elsewhere in the world. You will be able to invest it in asset classes which are not currently in the mix so if you are in an industry super or retail super there are assets which simply are not being invested in – that could be precious metals, it could be collectibles, that could be direct property, there are a number of things which are just not available through those channels.

It will also get you involved – and as we discussed that comes with some negatives – but it’s also really good because it alerts you to your retirement, it forces you to think about how much money you are going to need to proactively address your retirement. In that sense it is fantastic.

And the last thing which is really interesting and quite dramatic in the outcome is that it will allow you to leverage – and leverage is borrowing money to acquire an asset to invest. There are very few wealthy, mega wealthy, super super mega mega wealthy who have gotten to where they are without borrowing money to get there. At the moment this is not something that most superannuation funds are doing but the self managed super fund can do that. So yes it comes with a cost and it becomes with a responsibility and time and other things that are required but of you’re willing to do that you will have access to a strategies, to asset classes, to investments which are otherwise not available.