Super in Property

[Pilchard_Adams]

I read that because houses are generally hard to buy for first timers these days due to how much they are worth, the government has allowed people to pull their super and use this as a deposit for their home. Apparently too many people (escpecially in Sydney) were moving out of their parents into rentals, then never being able to afford to buy a house. Just renting for years and years.

What are some opinions on this? I have 25k in my super that I am thinking would be better used as part of a deposit for a house.

 

[Fire]

I am open to be corrected, but as far as I am aware this idea has only been floated, not adopted.

If they did adopt this idea though... boy. Have a good think about what you are doing. Commuting the bulk of 20 years of your wages and all your super to a single asset which you can't really liquefy without a significant drawback. What are you going to do come retirement time? Live off whatever is left as a pension? Or just keep working until you drop dead?

 

[Pilchard_Adams]

Im not 100% sure if the idea has been fully adopted as yet. Would be risky in some situations, and I am not sure of the fine print either.

Its just a thought atm.

I just thought it would be a decent option. For example (using BankSA calculators

a $450,000 loan at 7.5% interest rates over 30 years had weekly repayments of $786, and if paying the minimum repayments, total interest paid over 30 years would be about $502,606

A $430,000 loan at 7.5% interest rates over 30 years had weekly repayments of $751, and if paying the minimum repayments, total interest paid over 30 years would be about $480,268


So using that 20k super is actually a saving of $22k in interest, and $54,600 less in repayments over the 30 years. I cant see that 20k super amounting to $76,600 in 30 years.

My home loan would be $35 a week cheaper, I could pay an extra $13 a week into my super account and have the 20k back in there in 30 years well before retirement.

That still leaves me $22 a week better off. If I paid that $22 a week onto my home loan as extra repayments, that saves me a further 8 years off my home loan, and over 41k in interest.

In summary, the 20k super would be back in my super fund before retirement. It would also allow a saving of 63k interest over the 30 years.

Thats just my understanding of it, not sure if I am correct...

 

[skzm]

I cant see that 20k super amounting to $76,600 in 30 years.

20k @ 6% in ubank saver for 30 years. 20 * (1 + 0.06) ^ 30 = ~115k...

 

[Pilchard_Adams]

20k @ 6% in ubank saver for 30 years. 20 * (1 + 0.06) ^ 30 = ~115k...

Good option if you are allowed to withdraw your super at an age of mid 20s and put it into an account like that. But you cant as far as I know.

As far as I know super cannot be touched unless there is special circumstances eg bankrupt or medical issues, or invested into property

 

[skzm]

Good option if you are allowed to withdraw your super at an age of mid 20s and put it into an account like that. But you cant as far as I know.

It was just an example - what kind of annual returns would you expect from the average super fund?

 

[Visions]

At the moment Super can only be used to purchase investment properties through Self Managed Super Funds, you cannot use it for personal residential properties.

Basically you set up a SMSF, use what is in your super to pay the deposit , stamp duty, etc, of the investment property. The SMSF trust takes out a loan for the remaining amount. For the loan to meet lender approval, any rent, super contributions, gains on remaining super amount need to meet the repayments (so nothing comes out of your pocket). Major benefit of this is capital gains are zero if you sell the property after retirement age, and is subject to standard contributions tax if sold prior to retirement age.

 

[Pilchard_Adams]

Thanks visions, very useful information!!

 

[bulldogsfan]

I read that because houses are generally hard to buy for first timers these days due to how much they are worth, the government has allowed people to pull their super and use this as a deposit for their home. Apparently too many people (escpecially in Sydney) were moving out of their parents into rentals, then never being able to afford to buy a house. Just renting for years and years.

What are some opinions on this? I have 25k in my super that I am thinking would be better used as part of a deposit for a house.

There's opportunity to start a family trust etc, which is where you put your super and ends up owning property. Talk to your accountant.

 

[Visions]

There's opportunity to start a family trust etc, which is where you put your super and ends up owning property. Talk to your accountant.

You can't move super into a family trust.

 

[Colin D'Cops]

Basically you set up a SMSF, use what is in your super to pay the deposit , stamp duty, etc, of the investment property. The SMSF trust takes out a loan for the remaining amount. For the loan to meet lender approval, any rent, super contributions, gains on remaining super amount need to meet the repayments (so nothing comes out of your pocket). Major benefit of this is capital gains are zero if you sell the property after retirement age, and is subject to standard contributions tax if sold prior to retirement age.

I like the sound of this.

Have some money in my account, and both my mother and father are just over 50 and could assist with their supers.

Could you hand me or direct me to some more information on this please? Any recommendations?

 

[Visions]

I like the sound of this.

Have some money in my account, and both my mother and father are just over 50 and could assist with their supers.

Could you hand me or direct me to some more information on this please? Any recommendations?

As a mortgage broker I only deal on the loan side of things, but you can find general information on the net about SMSF's and their requirements. However it is best to obtain professional advice on the matter, your accountant would be a good place to start as they can also generally setup the SMSF if it is a viable venture. What I do know is that the SMSF has setup costs and needs to provide annual financials and independent audits which could be a few thousand (hence why it might not be worthwhile if you don't have enough funds), and you need to ensure the SMSF trust deed is drafted correctly because if it isn't written correctly, it might not allow the SMSF to borrow funds for an investment property.

On the loan side of things, depending on the lender you may typically be able to borrow up to 80% max (which means you need a decent sized fund to pay the deposit and associated costs). The link below gives a good idea of how the structure works.

http://www.prowealth.com.au/Super Fund Loans

 

[Jafa]

I like the sound of this.

Have some money in my account, and both my mother and father are just over 50 and could assist with their supers.

Could you hand me or direct me to some more information on this please? Any recommendations?

It's an oldish thread but I have just done this to purchase property. In my case I simply borrowed money directly and used it to make up the balance so my super fund could purchase land I wanted to develop.

It is important to note that neither you nor any immediate family members can reside in the property if it is done this way unless you either buy the investment off the fund or you are old enough to take your super. You can however lease or rent and the money collected goes into your fund. I also have a workshop in my SMSF that I lease to my business - works nicely for us.

 

[JohnW]

It's an oldish thread but I have just done this to purchase property. In my case I simply borrowed money directly and used it to make up the balance so my super fund could purchase land I wanted to develop.

It is important to note that neither you nor any immediate family members can reside in the property if it is done this way unless you either buy the investment off the fund or you are old enough to take your super. You can however lease or rent and the money collected goes into your fund. I also have a workshop in my SMSF that I lease to my business - works nicely for us.

You obviously need to have the equity available to borrow the funds, and you also need to be aware of the contributions limits and the tax implications if these are breached. No property inside a super fund can have any family members living/renting in it, no matter how it is done.

 

[Troubadour]

The SMSF share of the profit also needs to stay within the SMSF as I understand it. The SMSF can borrow itself if it has the assets/income to support it

 

[JohnW]

At the moment Super can only be used to purchase investment properties through Self Managed Super Funds, you cannot use it for personal residential properties.

Basically you set up a SMSF, use what is in your super to pay the deposit , stamp duty, etc, of the investment property. The SMSF trust takes out a loan for the remaining amount. For the loan to meet lender approval, any rent, super contributions, gains on remaining super amount need to meet the repayments (so nothing comes out of your pocket). Major benefit of this is capital gains are zero if you sell the property after retirement age, and is subject to standard contributions tax if sold prior to retirement age.

10% CGT if held for over 12 months. Rental income subjected to 15% as you said. Rent and CGT reduce to 0% if you are in pension mode.

 

[Off The Couch]

Could my husband and I combine our super to set up SMSF - it would give us about $220,000

 

[JohnW]

Could my husband and I combine our super to set up SMSF - it would give us about $220,000

Yes. If you are planning on buying property for example and it costs $220,000 the asset would need to be in the interest of the member for the equal weight they contributed to the fund. I.e. $110,000 each put into the fund, the property would be held by the SMSF for the retierment of person A (50%) and person B (50%).

Fees and charges could be an issue with that size of account.

 

[Off The Couch]

Thanks JohnW - just not sure which way to go. On one hand I think it would be a good to invest in property rather than leaving it to volatile markets and then on the other hand we get told it's an expensive process and quite a few pitfalls. Looks like more research is in order.

 

[tandino]

Could someone enter into an agreement with their SMSF to lease a property that the SMSF owns, and pay the SMSF the going market rate in rent for that property?

 

[JohnW]

Could someone enter into an agreement with their SMSF to lease a property that the SMSF owns, and pay the SMSF the going market rate in rent for that property?

commercial yes. Residential no. And the no extends to family members and other related parties.

 

[CranktheAnchors]

Could someone enter into an agreement with their SMSF to lease a property that the SMSF owns, and pay the SMSF the going market rate in rent for that property?

There is the related parties rule (someone might clarify exacltly what its called?) where if your super owns a residential property you cannot rent the property off the super fund. As Jafa said no related parties.

Alternatively the super can own say a commercial shed and your business is able to rent the shed off your super at the market rate.

As for setting up a SMSF with a Bare Trust to be able to *borrow to buy or just buy a residential property there are a few costs for year 1.

These are all estimates.

Trust Deed & Minutes for SF = $1,150
Bare Trust Company = $700
Bank Fees = $2,000
*Borrowing Agreement = $1,650
Accountants = $2,000-$3,000

Then every year the costs of an SMSF with just 1 property.

Audit $550
ATO Levy $250
Financials $2,000-$2,500

Happy for anyone to clarify/confirm these costs as its from research i have done.

 

[go hawks!!!]

As for setting up a SMSF with a Bare Trust to be able to *borrow to buy or just buy a residential property there are a few costs for year 1.

These are all estimates.

Trust Deed & Minutes for SF = $1,150
Bare Trust Company = $700
Bank Fees = $2,000
*Borrowing Agreement = $1,650
Accountants = $2,000-$3,000

Then every year the costs of an SMSF with just 1 property.

Audit $550
ATO Levy $250
Financials $2,000-$2,500

Happy for anyone to clarify/confirm these costs as its from research i have done.

Hey crankthe anchors.....

My company specialises in SMSF property purchases. We ensure prior to any purchase takes place all clients are educated and understand the risks and benefits of running a SMSF and investing in prioperty through a SMSF.

Essentially our costs for the set up of a SMSF with a corporate trustee (use a company rather than individual as trustee) is $800 and this includes ASIC fees. This is a once off fee.

Our annual administration charge for the administration and compliance of the fund is $1068. This includes the preparation of Financial statements, lodgement of tax return AND audit.

In relation to SMSF borrowing to invest in property we specialise in this area. We have a relationship with a leading bank that offers preferential rates to our clients.

The costs of the bare trust set up (including custodian trustee) is $1750 inclusive of legal fees. This is a market leading rate with quality service which includes a personal touch in that we run you through the entire process and you have a direct relationship with the bank manager.

We are able to offer lower fees than accountants as we are SMSF specialists.

If you are interested in the above, PM me your details and we can give you a call to discuss.

 

[HighRoller]

Hi all,

I am a financial adviser with an SMSF specialist accreditation and would be happy to discuss anything SMSF related with anyone interested. Unfortunately on this forum i am unable to provide any specific or personal financial advice but would be more than happy to run through the pros and cons and crunch the numbers with anyone wanting to learn more.

Feel free to send me through a PM if you would like to have a chat over the phone about how it all works.

Kind Regards

Stuart.