Should I Roll over Our Super to a SMSF?

freekay on 19/01/2024 - 11:23
Last edited 19/01/2024 - 15:05

Hey there all you keen finance experts! Hoping to get a few perspectives on the question above. My wife and I have about $210k each in super, so about $420k in total. We were toying with the idea of combining our funds in a SMSF, with a corporate trustee, so that we can purchase an investment property. What's stopped me from pulling the trigger so far is that our individual funds have been performing quite well so far and that we'd be putting all our eggs into one basket with the property. That and I'm very oblivious to what is involved in running a SMSF.

Wife and I are in our 40s and plan on working right up to retirement age, so roughly 25 years left. Would love to hear from people who have SMSFs—what do we need to look out for? Pitfalls? Should we even bother?

Thanks in advance!

UPDATE:
General consensus is no, stick with industry funds and look at ETF options they offer. PI in SMSF is a lot of work and may cost more than it's worth. Thanks, everyone for your input, especially those shared their SMSF experience!

Financial Superannuation

Comments

  • Duckie2hh on 19/01/2024 - 11:25
    +2

    Do you feel that you can grow the money better than that of standard retail superfund? Are you planning to take out a loan to fund this purchase?

    • freekay on 19/01/2024 - 11:27

      That's a crystal ball I wish I had. We're with a low-fee industry fund. Invested 70% international shares, 30% Aussie shares. It's gone great guns in the past 5 years, but then again, so have Sydney property prices!

      • Duckie2hh on 19/01/2024 - 11:29
        +6

        Comes down to risk appetite. You can really fike up your retirement if you don't know what you are doing in the SMSF. I wouldn't want to bet the retirement of 2 people on a single investment property.

        PS: Loans for IP inside super is very strict and generally attract interest rates well above 7%

        • freekay on 19/01/2024 - 11:40

          Yeh, hence my hesitation to put everything in one basket. I've had an IPs before, but not in super, so I'm aware of costs involved in managing that, and we've managed to flip them for some tidy profits, which is why I'm considering purchasing an IP through super. The other rationale is that borrowing aspect - it's sort of a tax-effective way to get more into your super without impacting your contribution limits. E.g. I have 420k in super, but I want that balance to be, say, 850k. I can either max out my contributions (and probably not hit it) or I can borrow, purchase a positively geared IP which practically pays itself off. Still, very risky though

          • Duckie2hh on 19/01/2024 - 13:38

            @freekay: I am not sure about this…. but I do not believe you get CGT discount if you sell the IP inside of super.

            • MITM on 19/01/2024 - 13:46
              +1

              @Duckie2hh: Yes you do, it's effectively 10% CGT (15% tax minus 50% discount)

              • Duckie2hh on 19/01/2024 - 13:47
                +1

                @MITM: Ta

                • MITM on 19/01/2024 - 13:51
                  +1

                  @Duckie2hh: And 0% CGT if in retirement/pension stage. (And for the flippers* - 33% discount applies if property is sold within 12 months of purchase - nil discount outside super)

                  *If your fund owns a property outright, which means that it did not take out any loans to purchase the property, you have complete creative freedom when it comes to renovating or improving the property. If, on the other hand, your fund used a loan to purchase the property and the loan is still active, the only kind of modifications or repairs that are allowed is those that do not alter the nature of the property.

  • Lord Fart Bucket on 19/01/2024 - 11:27
    +2

    What does your financial advisor say?

    • freekay on 19/01/2024 - 11:27
      +13

      He told me to ask OzB :P

  • Dollar General on 19/01/2024 - 11:28
    +4

    I’ve had an SMSF since 2009 and stick to stocks and cash. You will need to have a decent buffer of cash available with property for the unknowns eg property taxes or other government charges increase more than planned, tenants damage the property and insurance does not cover all costs etc. If it’s an apartment, body corp costs increase a lot or sinking fund needs more money.

    Interest rates are higher for a SMSF too as non recourse loan.

    How much more gains are available in property now anyway? The S&P ETF (ASX:IVV) has probably outperformed property over the past 5 years too

    • freekay on 19/01/2024 - 11:32

      This was my other consideration. Investing directly in ETFs instead of relying on the fund's mixed bag of assets (and their underlying fees). What are your annual running costs, if you don't mind me asking?

      • Dollar General on 19/01/2024 - 11:47
        +3

        I’m with esuperfund & taking out ATO fees etc they charge about $1200

        When I set my SMSF up, there weren’t any of these wrap accounts available which you can get today. Your superfund may have the ability to let you invest in ETF’s and shares directly (not all stocks) without needing to go down the SMSF path.

        My life insurance is a lot more expensive that what you would be paying in a large fund too. You may want to keep a little bit of funds in your current fund to keep the insurance active if you go down the SMSF path

  • ginormousgiraffe on 19/01/2024 - 11:36
    +8

    Do you think that a SMSF invested in a debt leveraged asset will outperform 9% net return after interest, set up cost, taxes, accountant costs, maintenance, real estate costs, etc?

    Run your own numbers but I'd highly doubt it. And even if it did perform slightly better, removing all of your diversification to purchase not only a single asset class, but a single unit within a single asset class, is an extremely risky way to gamble your retirement

    • freekay on 19/01/2024 - 11:45

      My initial idea was to take 300k to borrow another 300k, leaving 120k in cash to get a 600ish apartment. Loans and costs would then be paid for by our employer contributions/rent, and praying that the apartment value grows 200k+ in 20 years.

      • sumyungguy on 19/01/2024 - 11:51
        +2

        Houses generally outperform apartments but I know someone who operates an investment apartment as an Airbnb achieving excellent returns.

      • barge-in hunter on 19/01/2024 - 11:58
        +3

        Over the long term, would the value of the apartment grow as much as a property with a standalone land title?

        I'd be concerned putting all my families' super eggs in a single apartment where the condition of the hallways/entrance/shared facilities were largely outside of my control.

      • Dollar General on 19/01/2024 - 12:25
        +2

        Between land tax, rates & other costs, I reckon it would be $5K per year minimum. That means $100K minimum over 20 years which erodes heavily into your $200K capital gain over 20 years

    • SlickMick on 20/01/2024 - 17:23
      +1

      I ran my numbers: $420K at 9% came to ~ $3.5M
      $420K as 20% deposits on $2.1M worth of properties… what are the chances property values would increase by average of 2%pa??

      Debt-leveraging is in lieu of good returns.
      I wouldn't put properties above stocks, but they both have their place. I love compounding returns, but leverage has done more for me.

      • freekay on 20/01/2024 - 18:11

        I'm definitely keen on debt leveraging in super. It just seems like the only other way to get money into the fund without triggering any contribution caps. I think I've asked that question a few times already, but not seen anyone that's currently gearing/leveraging in super.

        One thing to note about your numbers is that lenders will want you to keep about 10% of the asset value (or was it lent funds) in cash. Something like that. In other words, I wouldn't be able to leverage against the entire 420.

  • sumyungguy on 19/01/2024 - 11:42
    +3

    According to Chant West, the top 10 Performing Growth Funds (10 Years to December 2023) earned more than 7.3% with a survey median of 7.0%. Your investment property would need to perform better than this. Just beware that only winners in real estate get media coverage. There's a huge cohert of property investors who aren't doing so well, you just don't hear about them.

  • bemybubble on 19/01/2024 - 11:42
    +3

    Main reasons to setup an SMSF:

    • Control over investments
    • Investing in direct property
    • Tax minimisation strategies not otherwise afforded via AHPRA funds

    Other than that - pick a fund with high returns and low fees (generally industry funds are the winners here). Otherwise you'll find the cost to outweigh the benefit.

  • JIMB0 on 19/01/2024 - 11:47
    +2

    Who is going to manage the property? Even with a property manager there is still a lot of stuff to deal with, tenants can be a pain in the ass. I'd stick with stocks just for this reason.

  • Drakesy on 19/01/2024 - 11:50
    +6

    If you look back at the last 20-30 years, the stock market has still outperformed houses.
    Investment properties require maintenance, tenants, strata etc.

    Food for thought.

    • MITM on 19/01/2024 - 13:33

      Property/shares are about equal - depending on the time range. But yes, shares have no people problems (the human factor) and if you need to liquidate, you can't sell just the bedroom.

  • Ponsonby on 19/01/2024 - 11:52
    +2

    An SMSF is not the only way to get direct exposure to particular assets. Quite a few industry funds (e.g. Australian Super) now allow you to invest directly in ETFs of your choice (and in other mutual funds and individual shares of your choice)

  • freekay on 19/01/2024 - 11:58

    Thanks, everyone for your input so far. What are your thoughts on gearing/borrowing in super? Anyone doing that at the moment?

    • MITM on 19/01/2024 - 13:36
      +2

      Thought about commercial property within SMSF ? Tenant pays all outgoings. Employer contributions/salary sacrifice pays some of the mortgage. Long term leases for peace of mind.

      • freekay on 20/01/2024 - 17:22

        Too hard to get a loan for commercial property. Most lenders want to go for resi only.

      • suntap on 25/01/2024 - 23:49

        My super fund was losing funds quickly during the gfc crash in 2008. Withdrew all funds to set up a SMSF and paid $239K cash out of the fund for an industrial unit at Tweed Heads in 2009. Listed it for sale this week for $810k + gst and am taking a TTR pension, I'm 61. The sale will be cgt free as it is being used to fund my Transition to retirement pension. I am extremely satisfied with a) the returns and b) the tax situation.

        • JIMB0 on 26/01/2024 - 07:37

          You would have done just as well leaving it in there and without the headaches of property.

          • Lunarboogie on 26/01/2024 - 07:50

            @JIMB0: I think he would have done better leaving it where it was, particularly after discounting the outgoing costs over that period which reduces the perceived gain quite significantly.

        • Kpop on 27/01/2024 - 22:36

          You may want to get specific tax advice around the cgt of the property sale. Ttr’s no longer have tax free earnings.

  • bbinc on 19/01/2024 - 12:24
    +7

    600k apartment will not be an ‘A’ lister (or even “B’). I’ve had IPs at the bottom of the rental market, it wasn’t an easy place to be. Some nice tenants, but with high demands and income issues. Rental rules are pretty harsh for landlords atm. Your fund would risk cash flow problems if you couldn’t cover rental loss or interest rate increases. You’d have to somehow get more capital into the SMSF, or sell just to stay compliant. DO NOT start an SMSF without reading some of the many books on running one. As bemybubble says, there are advantages - control and tax options were a real benefit for me. If you don’t have the capacity/time to run it yourself you’ll be paying fees to a manager. I use DIY software - $220 p.a., audit fee $330, ATO fee $259, ASIC fees for a corporate trustee, a manager may add 2-3k or even more to that, especially with a property.
    After 15+yrs running one, would I do it again? With the low cost industry funds out there, with a much wider choice of investment and increased clarity re costs - probably not. For property? Only if I could afford a really attractive unit in a highly desirable location.
    Good to see you exploring options, but take your time and understand every step before acting. Super is a fabulous tool for setting up retirement, but watch them chiselling at the edges every year.

    • freekay on 19/01/2024 - 14:59

      That's some really good insight. Thank you!

    • Unified on 15/08/2024 - 19:09

      Good insight! can you explain "I use DIY software - $220 p.a., audit fee $330, ATO fee $259, ASIC fees for a corporate trustee, a manager may add 2-3k or even more to that, especially with a property."

  • oscargamer on 19/01/2024 - 12:33
    +2

    From a happily recently divorced male, don't combine supers. Despite your best intentions, you simply don't know what's around the corner.

    • MITM on 19/01/2024 - 13:43
      +2

      Sorry for your loss.
      Could add into the deed that the SMSF can't be wound up until all members are at retirement age. Therefore if you split before retirement the fund continues and after retirement any "fire sale" of assets is CGT free (at least).

      • oscargamer on 19/01/2024 - 15:06
        +1

        Financial loss.

        Life regained.

        Good outcome.

    • battler on 19/01/2024 - 14:05

      Even if you don't combine, the larger of the supers would be split to 'pay out' the ex, so there is still paperwork - but perhaps not as messy.

      • oscargamer on 19/01/2024 - 18:23
        +1

        Yeh nah

        There's a bit more to it than that….

    • freekay on 19/01/2024 - 20:09
      -1

      Technically not combining our supers, as this is not allowed. We'll each have our own accounts within the SMSF. The Trustee is simply using the pooled monies to purchase the assets for the fund.

  • Benoffie on 19/01/2024 - 12:44
    +2

    Agree with all statements.

    SMSFs are a lot of work if you want good performance. The 2 people I know that have them are retired and treat them like PTE. They are not set and forget.

    Definitely attest to the divorce concerns. Co mingled Super is a huge no no. While the courts are finally putting more effort into clarifying financial efforts beyond simple 50/50, co mingled super makes this virtually impossible for them to unpick. As a result, you could lose more.

    • bbinc on 19/01/2024 - 15:58
      +1

      Each member has their own account within the fund and all earnings/losses are distributed pro-rata, so individual ownership is clear at all times. Unlike a private joint bank account.

      • Benoffie on 19/01/2024 - 18:48

        Yeah but OP is taking about co mingling Super for property. Once the property is purchased, unless they are Tennants in Common, itll just become a mess.

        For me, I would be looking at a Trust and speaking to my accountant.

        • freekay on 19/01/2024 - 19:38

          FWIW, you can't 'co-mingle' super money (well you can, but you'll end up in lots of strife). The accounting would still be unitised and pro-rated according to each person's contributions. This is another setback, as I would need to either pay to use a DIY Super Fund admin system - e.g. esuperfund, or pay lots of money to an accountant to unpick it every year for reporting purposes.

          Also, for properties (and everything else listed in the SMSF), the Trustee is the legal owner, not the individual account holders. So no tenants in common to speak of.

          • Benoffie on 19/01/2024 - 21:40
            +1

            @freekay: Precisely, thats my point. Its not as simple pulling money from Super into SMSF andvthen running off to buy a property.

            Even having looked into it myself with family through a Trust, unless there's the right type of beneficiaries (children 16+ non earners, part timers or retirees) and the properties are earning the right incomes via rent, doing it to simply flip, even after 12 months, seriously needs some calculations. The inability to PPOR and the tax payments really need to be calculated against relatively solid, stable returns in Aussie Super funds.

  • jv on 19/01/2024 - 13:04

    Should I Roll over Our Super to a SMSF?

    Ask a Financial Adviser…

    • bbinc on 19/01/2024 - 15:59
      +1

      OP is asking Ozbargain Advisory!

    • freekay on 19/01/2024 - 19:44
      +1

      All jokes aside, the reason I'm not engaging an adviser was because I don't think I'm at a point where I need one. i.e. still too early in the piece. I'm just reviewing people's experiences with SMSFs first and seeing if it's even something I want to entertain. That being said, I'm really glad the vast majority of responses here have given me things to consider as well as leant towards the same conclusion. Crowd-sourced info at its finest.

  • Drpepper666 on 19/01/2024 - 13:40
    +2

    Terrible idea

  • MITM on 19/01/2024 - 14:07
    +2

    An accountant could cost up to $5000 or more annually. An online SMSF costs around $1000-$2000

  • mskeggs on 19/01/2024 - 14:10
    +3

    I have an SMSF and I was planning to purchase an investment property, but in the end did not do that. My spouse has an industry super fund.
    My returns have been lumpier than the industry funds, and costs are comparable.

    If I had my decision again I would have selected an industry fund, as it is much, much easier.

  • soan papdi on 19/01/2024 - 16:18
    +1

    Check out Hostplus's "Super Choice" or similar options with other industry funds.

    https://hostplus.com.au/members/our-products-and-services/in…

    Interested in self-managed super funds (SMSFs)? Choiceplus gives you many benefits of an SMSF without the high costs and administrative burden associated with an SMSF. Importantly, you remain invested in an Australian Prudential Regulation Authority (APRA)–regulated super fund.

    The Choiceplus platform allows you to make investments in real time. Live share quotes, 20-minute delayed market data, and investment tools, like watchlists and charting, mean that you can make informed decisions when the time is right.

    • bbinc on 19/01/2024 - 16:41
      +1

      Soan papdi posted while I was writing below. HostPlus is a case in point re investment manager fees. They are disclosed deep in their PDS, and the percentages seem small but it is worth running the calculator over your intended current and future balances to see the actual dollar figures for each choice. I got quite a shock, and happily resolved to keep the SMSF.
      And if you want to hold cash, there is little better than an SMSF in pension mode investing in TDs and online savers. No fees and no taxes.

      • freekay on 19/01/2024 - 19:45

        Thanks for the heads up RE fees!

    • freekay on 19/01/2024 - 19:45

      Interesting. Will dig a little deeper there.

  • bbinc on 19/01/2024 - 16:20
    +2

    I recently looked at rolling out of the SMSF into industry funds. I generally do one or two percentage points better each year, on an established portfolio. These days I tend to add just ETF’s unless a friendly Uber driver has a hot tip. (/s) I delved deep into their financial guides, and found that in addition to their low cost fee, there are investment manager fees in many cases, These are percentage based, and as your fund grows, so does their take. At OP’s current level, would probably not amount to more than the cost of running the fund, but as the portfolio grows, it can be many thousands more, while directly held shares (other than ETF’s) have no annual costs.
    OP should also be wary of the promoters of IPs in SMSFs. There have been horror stories where punters have ended up in something that is just too complex for them to manage, and they were not shown the potential pitfalls.
    All that said, OP has been wise to seek perspectives from those of us who have been in the game, it will help OP when seeking professional advice.

    • netjock on 19/01/2024 - 16:40
      +1

      OP obviously not fit to run an SMSF if they think taking $420k to buy an investment property is a good idea.

      Nobody would in their right mind approve investment mandate for a single asset in a single asset class.

    • freekay on 19/01/2024 - 19:59
      +2

      Thanks for that. That was my intent - to see what the experience of others in SMSFs have been. If one persons says one thing, then that's a data point. But if lots of people say the same thing, that's a trend. So now if engage an adviser and he turns around and tells me a wobbly about "rushing into SMSF and buying an IP now," alarm bells would ring for me. A forum post getting 20+ points of view is much easier (and less time consuming) than sitting down with 20+ advisers.

  • netjock on 19/01/2024 - 16:38

    We were toying with the idea of combining our funds in a SMSF, with a corporate trustee, so that we can purchase an investment property

    Great for diversification… NOT

    If you are doing this then you are not fit for running an SMSF.

    • freekay on 19/01/2024 - 16:54
      +2

      Did somebody hurt you, @netjock? Pretty sure what I'm doing (information gathering) is quite a prudent thing. I never said I was locked on the idea and that I'm just looking for validation. Based on your comments, you're against the idea due to lack of diversification, which is exactly what I wrote in the OP. Everyone else has been civil, not sure why you think you're the exception.

      No need for snark or attacks, buddy.

      • netjock on 20/01/2024 - 16:41

        Did somebody hurt you

        No. But I don't think you've done any research if you haven't looked at your responsibilities as a trustee. It is actually quite onerous. If you haven't even look at trustee responsibilities then you're just researching investment options for naught.

        Plonking it all on property the answer is in 100 different podcasts. You don't need to ask on OzB

        • freekay on 20/01/2024 - 17:03

          The question was more around SMSFs - and what the best use case for one would be. And I had hoped to get answers from people with lived experience in running one.

          But I don't think you've done any research

          The whole thing with property through SMSF was simply the impetus for looking more into the topic—I wouldn't jump into something like that without doing a damn large amount of research. Thing is, I don't want to waste my time, spending hours and hours researching something that's not suitable for my needs anyway.

          if you haven't looked at your responsibilities as a trustee. It is actually quite onerous.

          You're right in that I'm not fit to run a SMSF right now—I simply don't know enough. But IF I were to go down that path, you'd best bet I'd be dotting my I's and crossing my T's.

          you're just researching investment options for naught.

          I disagree. In just this post alone, I've had a number of leads by way of ETFs and super funds that I'll now spend some time number crunching to see if I can improve my super strategy. And even if they don't come to fruition, it would still not have been "for naught" as it would just confirm that what I've got at the moment is still a very good strategy.

          You don't need to ask on OzB

          Yeah? Well, you know, that's just like uh, your opinion, man.

    • SlickMick on 20/01/2024 - 16:40

      So buying a primary residence is okay, but buying a property to provide for retirement is a bad investment?

      I certainly wouldn't put my entire super into a single property, but OP could easily leverage several properties and have a good portion still in stocks/ ETFs/ cash.

      You attack on OP wasn't called for.

      • netjock on 20/01/2024 - 16:44

        So buying a primary residence is okay, but buying a property to provide for retirement is a bad investment?

        If you need an answer to this then you also haven't researched enough.

        Interest on primary residence (and rent) is non tax deductible and after tax income. So unless you have a crystal ball and think your profits in an IP after CGT can buy you a PPOR then you'll be in the deepest pool of doo doo.

        You ever seen anyone who rent and invest their money in IP end up being a via option that every expert suggests.

        • SlickMick on 20/01/2024 - 16:50

          I'm calling your single-minded "must diversify" rant.

          No-one would be a home if diversification was so important in real estate.

          Yeah, my second property wouldn't be next door, but property investing is all about leverage over diversification.

          • netjock on 20/01/2024 - 17:00
            +1

            @SlickMick: Yeah you're talking to someone with a home, plus 2 IP and 1 IP in London. Then I've got just as much money in equities.

            • SlickMick on 20/01/2024 - 17:19

              @netjock: congrats?

              So why try to put OP off?

              • netjock on 20/01/2024 - 21:19

                @SlickMick: $420k doesn't get you much property in this country and because it will be negative cashflow you'd more likely end up shoving money into an endless black hole.

                Don't congratulate me. I am an accidental landlord but I bought on the basis even as accidental landlord I am cashflow neutral. I'm selling my other 2 IPs in Australia soon. Not returning enough and neither is it diversifying benefits. Plus I am cleaning up by balance sheet.

                To get rich they say get a career or start a business. Nobody said be a landlord.

                • Ghost47 on 20/01/2024 - 23:01

                  @netjock:

                  Nobody said be a landlord.

                  Property bros say it all the time in Australia, they even sell courses teaching how to do it!

  • admira on 19/01/2024 - 17:03
    +5

    I went through a similar thought process recently, in a not too dissimilar position. Went to some talk about it and they spoke about how you sell the property and its entirely tax free … post 60 years old. Leverage capital in one to buy another in your super. Big sales pitch that sounded amazing (I think they were after fees to manage it all and also refer accountants and property developers ready to sell, all giving each other commissions etc).

    I was somewhat dubious but also curious, I spoke with a Financial adviser about wanting to start a SMSF to buy property and his first question to me was "Why?"

    He laid out the super fund return vs property return, extra fees, interest rates, work and effort, and also risk of bundling my entire super into one asset, which if I slipped on meeting compliance or if say its a unit in a block which develops key structural issues etc…I could see massively devalued. So - extra risk, a lot of extra work, for possibly a small increase on return.

    His advice was not to dismiss the idea entirely but to wait until I had about triple what I currently have in super, then its not a "all eggs in one basket" situation.

    • freekay on 19/01/2024 - 17:07

      Thanks! That's really fantastic insight!

    • SlickMick on 20/01/2024 - 16:33

      lol that's funny, convincing someone that property is riskier than stocks. Did he also spell out everything that can devalue a stock?

      Just some really rough figures: $200K invested as 20% deposit on a $1M house paid off over 25 years. What would you expect today's $1M property to be worth in 2049?
      With SMSF interest rates, I presume it would be negatively geared for some time, but would it be reasonable to estimate that rent and costs break even over the duration?

      Vs $200K invested in an index ETF. Is 7% a reasonable average return? That would be just over $1M.

      I see property investing as a fantastic savings tool. You're locked into paying off something currently worth 5x what you can afford. The return sucks, but the result is excellent.

      I totally agree with your point re diversification. OP could easily invest a smaller portion of super in a property, and consider adding another each time sufficient funds accumulate for another deposit.

      • netjock on 20/01/2024 - 16:49

        Residential IP is so good AustralianSuper etc are up their eye balls in it?

        Of course not. If trustee fiduciary responsibility is returns of members and they miss out on an obvious high returning asset class.

        Okay please pull the other leg.

        • SlickMick on 20/01/2024 - 16:52

          They're just investing, not leveraging. If someone would loan on 20% deposit to invest in stocks that would be great, but it doesn't happen.

          • Dollar General on 20/01/2024 - 16:53

            @SlickMick: Margin lending, instalment warrants etc

            You can get a loan with 20% deposit in stocks

      • Dollar General on 20/01/2024 - 16:52
        +1

        lol

        You remind me of a property seminar i went to about 25 years ago where they did the same calculation. So you are comparing $200K in an ETF vs $1M invested into a property.

        Rerun the numbers using $1M on both

        • SlickMick on 20/01/2024 - 16:55

          No I'm not, you've total missed what they were trying to teach you. OP has $420K to invest. How much could he invest in shares with that? How much could he invest in property with that? What would the results of each me.
          You can argue theoretical numbers, or venture out and see what you can actually achieve.

          • netjock on 20/01/2024 - 16:59

            @SlickMick: Property has been done to death. Everyone knows the numbers. Only people who pretend there is some magic maths is property spruikers,

        • netjock on 20/01/2024 - 16:57

          I like how they bring these experts in property who made tens of millions and now they want to teach you for your own good. Only $3k for the course and they run one every week with 300 students.

          Obviously riskless profit and they did the calculations on return on investment.

      • Ghost47 on 20/01/2024 - 23:43
        +2

        What would you expect today's $1M property to be worth in 2049?

        Assuming a 7% growth rate (probably low compared to gains over the past few years in our major cities) a $1m property could cost $5,807,352.92 in 2049.

        The amount of leverage you can get with a property can't be beat, you are right. But that comes at a cost of not just diversification but risks regarding tenants, damage, legislation (e.g increasing land taxes), interest rates, natural disasters etc. The leverage comes at a cost of all of that. Properties also deteriorate physically over time too, so at some point it will need to be knocked down and rebuilt completely, and that will come after multiple patchwork repairs around the place. I mean sure, you could sell the property or pass it on before that's required, but whoever owns it eventually will need to factor that cost in and you're just passing your problems onto someone else.

        I would say that one big reason property boomed the past 10 years is because rates were on the steady decline and cheap money came easy. Other factors like foreign investors parking their dirty money in our country, silly and unsustainable levels of immigration, low amounts of supply further exacerbated by building companies going bust etc. You can think that these things are fine because they led to your investment appreciating, but they will eventually lead to poor social outcomes. Don't be mad if in 20 years' time 80% of the coffees you order from the local cafe are poorly made because the 20 year old baristas just don't care anymore, or it takes you 45 minutes to find a car park at your local shopping centre because of how many people moved to your city, or if your ambulance gets ramped because hospitals are under too much strain. Heck, maybe you won't even notice these things because I don't think everyone does.

        Personally I see this country going downhill and becoming more slum-like in 30-40 years' time and a large part of it all is driven by the incessant desire for property values to grow.

  • ihbh on 19/01/2024 - 19:30
    +2

    Key considerations:

    • Lack of management diversification and expertise
    • High fees, especially for low balances < 'ms
    • People that consider SMSFs then to skew to residential property (e.g. sold to by lawyers to set it up or managers to take annual clip) - why do people assume Aus RE will continue to go up forever at the same rate as in the past couple of decades - look at Japan and China recently -> lake of diversification
    • Ghost47 on 19/01/2024 - 21:24

      why do people assume Aus RE will continue to go up forever at the same rate as in the past couple of decades - look at Japan and China recently -> lake of diversification

      I don't blame them; the government has set it up so that housing can't fail (or when it eventually does fail it's going to be devastating, think a multi-year long depression).

      Japan and China have ageing populations and people aren't having kids, we import silly amounts of people from overseas to prop our economy up (1.5x the population of Canberra last year), our zoning laws are restrictive and designed to keep house prices high, many builders have collapsed the past few years, there's a large shortage of rentals/vacancy rates are low, we don't have the labour to build the amount of houses we need etc. All these factors point to house prices booming for the foreseeable future.

  • Rako on 19/01/2024 - 22:28
    +1

    Where do the funds come from if you need expensive repairs or if it's an apartment special levies? does the money to cover those expenses have to be in the SMSF or can you use outside monies?

    • miwahni on 20/01/2024 - 01:34
      +2

      Any "outside moneys" are subject to the same concessional and non-concessional contribution rules as an industry fund eg $27500pa concessional (plus any unused limit from the last five years' contributions) and non concessional of (IIRC) $110kpa.

  • Lunarboogie on 20/01/2024 - 11:31
    +1

    I recently went through a similar exercise to OP. I didn't consult an advisor but I crunched the numbers, compared various funds and ended up establishing a secondary super account with Vanguard (my other one is a government defined benefit scheme so can't touch it).

    Vangaurd's Aussie shares option is the same as their VAS ETF. And their international shares equivalent is the same as VGS which was the option I chose. I'm a big fan of ETFs and so I was pleased to discover such a super product existed. Vanguard's fees are lower too.

    • freekay on 20/01/2024 - 18:17

      Would you mind sharing how much you pay in fees for Vanguard?

      • Lunarboogie on 20/01/2024 - 18:46
        +1

        0.58 per cent - vanguard.com.au

  • MITM on 20/01/2024 - 14:52
    +1

    Thanks for the update Freekay. It’s been an interesting discussion. So you have concluded to continue the status quo which typically is the best one can do in the Australian retirement investment environment.
    Continuing this path for the next 25 years, will this ROI provide the desired outcome for you both if you forward project ?

    • freekay on 20/01/2024 - 17:15
      +1

      I think, for the time being, I'm happy to stay where I am. Returns over the past 4 years have been great in my current fund, namely that my super has doubled in that time (past performance is not an indication of future performance, yada yada). And it seems like a lot of people who have jumped into SMSFs (or have looked into SMSFs, being in a similar position to me) concur that, at my current level of funding, the cost via dollars and time would likely outweigh increases (if any). I'll check back in 4 years, after my super has doubled again (lol) to see if my strategy needs to be reviewed!

  • SlickMick on 20/01/2024 - 15:59
    +2

    I have a SMSF for shares and keep property in own name. I'd only consider a SMSF if you're happy to do the administration, and happy to choose stocks (or ETFs, bonds etc).
    I hated paying a fixed % regardless of whether the fund made or lost money. I'm not sure whether any funds have more reasonable costs now? It costs me ~ $700pa, so unless your fund charges < 0.2%, I'd be going for SMSF. As your super grows, the % cost of running a SMSF diminishes.

    IMO the only advantage to property investing is leverage. The returns are mediocre, but 5-fold if you only invested a 20% deposit.
    I'd never consider paying cash for a property instead of shares. You could consider leveraging several properties, but with the higher interest rates in super you'd have to do the maths whether Super is the right vehicle.

    • freekay on 20/01/2024 - 18:21

      I have a SMSF for shares and keep property in own name.

      Yup. I need to remind myself that I can still just fund my retirement by purchasing IP outside of super. Won't enjoy the tax benefits, but much less onerous and I can sell up if I hit a major financial bump before preservation age.

  • hueylewis on 21/01/2024 - 14:55

    https://www.news.com.au/finance/real-estate/sydney-nsw/retir…

    2.2 million dollar sydney penthouse gets only 400k compensation.

  • Unified on 15/08/2024 - 19:08

    As always a good place for great insights and advice based on the constructive comments!

    Had a thiking of setting up SMSF and then rollover bit of fund from current super to invest in a land which is not yet developed. As it progresses to development state (which is another 2-3 years) then can think of either building a house or selling the land for a profit so the profit goes into the SMSF for 15% tax - now thinking again would SMSF a good idea?

    • MITM on 16/08/2024 - 15:42

      As the land won't be producing income while appreciating, you'll need to inject funds to pay SMFS costs. Profit would be 10% tax in SMSF - 15% less 50% GCT discount.
      Will you use SMSF funds to buy the land outright or will you also need a loan setup inside the SMSF ?

      • Unified on 17/08/2024 - 08:19

        Thanks for your reply. Plan is to buy the land with progressive payment over 2-3 years hence the thinking was to setup the SMSF, roll-over small amounts from Industry super to SMSF and pay for the land progressively. Long term plan is not to get a loan as target is the land will be appreciating over the time. I understand during the duration, I will be making the payment to have the ownership of the land and eventually it will appreciate but who knows. Can you please explain the costs breakdown bit more clear as I was thinking of DIY to save SMSF costs but from here got to learn that there are few providers e.g., esuper, Stake SMSF seems to be resonable so would that be a better idea to pay these providers instead running in different modes to comply with rules and regulations.

        • MITM on 18/08/2024 - 14:16

          You could salary sacrifice into your SMSF to make the progressive payments at 15% tax rate up to max voluntary contributions limit = $27,500 PA - but there is also the additional carry forward limits available.

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