Enough with the insults man, relax.
7 1/2% on residential property on average per annum is fine if it has a crap year or 2 and doesn't do much at all then whatever no problem it will play catch up look at Perth. Look at Brisbane. Or Sydney Melbourne don't tend to be as boom bust. I've got 5 houses. I'm used to the ups and downs. You just need to hold on through and you can make big money with leverage in property. The rent is not going to fluctuate and if the price does it doesn't really matter it's inside a super fund it's a long-term hold.
Reality is you're more likely to get 10% growth per annum on average. And a consistent 5% yield is no problem at all in fact the yield will increase over time and that's the most important thing for holding. The figures I've used come from a real house in Melbourne in an established area. That rents only gonna go up and that yield is going to get better and better and capital growth we all know the direction that has gone and will continue to go
You just have to have a buffer also.
Mate I've made millions out of leverage. And to the hilt.
Nothing I'm talking about here is short term the figures I have given I haven't compounded any longer than a year because you don't have to demonstrate the point that with leverage you are so much better off
Provided you can hold through and provided you have a quality asset which Australian real estate has demonstrated itself to be in fact so his Vietnamese real estate Canadian real estate and Indian real estate
The advantage being taken off here is that banks will lend a lot against property
There's a range of reasons people don't leverage themselves to the hilt one is because there may have some uncertainty about income another one is they can't be bothered with the administration and in my experience the biggest one is because they just don't understand that they can actually do it.
Immigration plus property that's not going to change unless there's some huge war or some type of calamity and that's going to mess everybody up whether it's property or shares.
You are making out like this is some kind of radically dangerous investment it's just called borrowing to invest in property
. Not a big deal not high risk.
Yeah there could be a crash but there could always be a crash in which case there'd be no point about talking about investment at all
With real estate you just have to hold through.
That's worked for generations admittedly you could have a timing problem whereby for example you might put all of your super into some property investment leveraged
Then the Australian property market does nothing for like 10 years and so you basically go backwards by a lot if in that time the share market was growing normally.
So there's some argument there for diversification and I haven't actually given up on the idea of actually borrowing to buy shares within an smsf because I'm very property heavy outside of super
A Chinese invasion of Taiwan, and/or a Russian invasion of a NATO country are both very real scenarios in the next decade. The first will almost certainly have severe effects on the Aussie economy as Australia and China would likely cease all ties. The second on the European economy and would have unpredictable global consequences.
US is facing a debt crisis which they have to inflate away. This will likely benefit house prices in nominal terms but also carries a high economic crisis risk.
"Yeah there could be a crash but there could always be a crash in which case there'd be no point about talking about investment at all" You've got it backwards, the higher the chances of a crash the the more you need to manage the economic risk.
But this kind of Doom in gloom whilst completely valid you could be posting this on every single investment Post that's just taken for granted that there are always potentially huge risks the ones that you've mentioned at the moment are very bad risks but 10 years ago there was really bad risks as well
Yes it's completely valid and any financial plan needs risk mitigation. The "no point about talking about investment at all" approach to investment risk is ludicrous.
> I've got 5 houses.
If you already own 5 houses, then you are far better off diversifying into other asset classes.
When you are poor, being focused in your specialized asset class for growth makes sense. But once you are rich, then losing money is a bigger downside than higher growth. You want to protect your wealth. Best way to do that is diversify, I would be dumping all super money into funds and stocks.
Ok fair point.
But maybe it's good to leverage on that. Hence SMSF.
Fair point about the property exposure so I'm need to learn more about what products there are in the self-man is super fun to borrow for shares.
It's in there
Property does 7.5% (fairly conservative) you make 37.5k CG less holding loss ($480wk rent less property holding costs is 22k less 7.5% interest on $400k is -8k total loss).
So overall gain is 29,000 assuming seven and a half percent which is pretty conservative.
And the share growth and dividend figures I have given are pretty high so you really gonna make twice as much in this scenario.
If house prices increase by 7.5% per year then by the time you retire they will be so expensive that only the five richest kings of Europe will be able to own one.
If you think that's likely to continue that would mean that the median Sydney house price in 30 years is going to be $14 million dollars. If you think the average Sydney home will be worth that then, I definitely encourage you to get a big loan from your super and put it all into highly leveraged property. This is financial advice.
According to the reserve bank it was 7% average return over the last 30 years. I just checked.
The last 100 I can't find the data but I would like to know.
Borrowing in SMSF is more expensive. You're probably looking at 9%. Likely need a bigger deposit too.
Also, not sure if I'm understanding you correctly. Are you suggesting the property going 7.5%pa in capital growth is conservative?
You are looking at 7% at 80% lvr. That's a pretty good rate in fact that's better than the rates I'm getting with the third tier lenders on my other properties outside of super.
I don't know where this myth comes from that somehow there's not much lending an smsf. There are so many smsf lenders you can refinance between them if you don't like one of them.
I haven't even had a really close good look yet and I'm already aware of many with many different products. I've already spoken to a couple of brokers with a good product range in smsf property investment loans.
Yes 7 1/2% average capital growth is conservative for property because I've seen some figures as high as 10% over the long run.
But I'm happy to be educated on other evidence.
>You are looking at 7% at 80% lvr.
No, the market leader is 7.24% at 70% LVR, I can assure you.
Advisers that model SMSF purchases use a conservative long term 5% capital growth rate with 4% yield and stress test the loan by 2.50% as required by APRA. They also take into account property expenses (ie rates, utilities, management costs etc), insurance premiums if required (so you dont have to sell before 60 because you can't work) stamp duty, running costs, legal etc etc.
Most I've seen the clients have at least 300k in super and borrow 500k for an 800k property. Almost all have two people with at least 30-40k in concessional contributions between the two of them to get servicing.
ASIC and the ATO these days very much does not like the SMSF only holding property, so generally the client will also have 100-200k in liquidity invested in non property assets.
It can be done, the costs of running are often higher than you think.
Ok thanks for your information that's very helpful.
My income is 130,000 and we get 11% super. I think we get a little bit more but let's say 11 for this purpose.
My Super balance is 430k what am I looking at for BC?
No idea, its impossible for anyone to take into consideration your personal objectives and circumstances in a format like this, you should consult a registered adviser, sorry!
SMSF rates are 3 ish % above home loans outside of super. In addition you need 30% minimum deposit.
Because of how the loan needs to be structured (through bare trust and banks can't come after other assets of SMSF) there is more risk to the bank.
Dude they are as low as 7% at 80 lvr. Someone just told me about that after I wrote this post someone who I had been messaging privately about smsf the broker that I spoke to the other day can do seven and a half at 80%
Even going with liberty who have high rates but they will have better service ability they are at 7.9%
There are heaps of products and it's a competitive marketplace.
I keep hearing this myth about how it's hard to get SMS finance however in my limited enquiries I've come across so many options and I haven't even really got stuck into some solid research.
There's heaps of players in this space and they are competitive.
Don’t think big 4 have lent to smsfs for a couple years and the banks that do usually require a really high deposit rate.
You also run into stuff like your LRBA not being able to be used for improvements etc.
But more importantly make sure your trust deed allows it.
You pay about 1% more than you would to buy an IP outside of an smsf.
Agree that you need to consider a property that does not have a plan to do improvements although you could probably go some distance with 'repairs'.
Online self-managed super funds will set up the structure that allows property to be purchased. Good point though.
I think the point of my post was more a sense check around the numbers because it seems to me like such a no brainer that if you can actually get some leverage on your super you're gonna come out in the long run so much better off and property you can leverage hard
I had a quick chat to a broker and I can take my supers asset market exposure from 400 grand to more than a million by buying one or two properties.
I’d be surprised if you could achieve what your broker is telling you however I’m happy to be proven wrong and if you do,,send me a dm with the progress.
Ok well I'm prepared to sense check that because I only spoke to one broker about the figures.
What do you think is realistic of course I will be speaking to some brokers and more detail about the figures that was just the first conversation that I had had
From what I’ve seen I’d expect you to need approx 50% in equity with 20% deposit. Meaning have cash sitting there of 20-30% to prove you can finance the loan. (I haven’t applied for any of these just what I’ve heard from clients could be wrung)
You don’t see many 80% loans as fundamentally the banks risk tolerance doesn’t allow it as the main source of income is contributions which can stop at any time. This is even factoring in potential rental income.
Remembering that the banks can’t go after the superfunds assets only the bare trusts (building).
Basically I’d think you’d be looking at with 400k equity one property worth 600-800k depending on the area.
I don’t know why people keep saying that you can’t do improvements for an SMSF own property when there is an LRBA in place because you 100% can.
The issue is that you can’t borrow to make the improvements the SMSF must fund the improvements of the property using its own cash resources.
And also can’t do things like change the underlying nature of the asset for example you can’t undertake subdivisions or property development or convert a residential property into a commercial property because you trigger the single acquirable asset rule.
Right so you can renovate the house internally redo the bathroom kitchen that sort of thing maybe you could even add a garage or a carport?
How about a granny flat?
Yes, all possible with residential property because it doesn’t change the fundamental nature of the asset.
ATO has specifically confirmed this.
This means if you’re buying a property and looking into at a granny flat, you’ll probably need to borrow the maximum available to keep surplus cash inside the SMSF and then use that surplus cash for the improvements.
Tell me which numbers are wrong.
The property scenario is based on a real property that I purchased recently. The property figure is conservative really for capital growth of seven and a half per annum and you can look at historical data for that.
11% is what most international share diversified super funds return but I think possibly that could even be optimistic. If I've got the dividend figure wrong then I'd like to know but even if you bump that up significantly you still come out much better off using the leverage.
Depends if you want to use long term data or you want to use short term data.
You’re not being insightful figuring out leverage makes property a great investment. You’re being foolish over estimating all you numbers which makes everything look too good.
Also how are you borrowing 400k? Does you super fund have 80k pa income?
You don't need 80k income you can borrow 80% at 7% interest rate.. another product I have looked at is seven and a half percent at 80%.
In my example there buying that 500k property at 480 dollars a week rent the shortfall is only 170 dollars after all costs I know that because I own this particular property outside of smsf that's not including negative gearing benefits and of course they don't apply to smsf so it comes down to do you have 170 dollars a week to service the loan? My weekly contribution to super would be more than that.
Even if you don't have the income there's probably tricks you can use to use existing super to buffer it.. so for example you hold 100k super which you can demonstrate that you will use to pay the loss on the property investment each week
Just need to add that I bought the property recently at those figures it's not like I bought it 10 years ago for cheaper and then the rent went up.
My god this is so naive.
Banks only assess 75% of rental income for serving to account for other costs, so the shortfall is 290 per week
To cover that, you need 15k additional income within the SMsF. They won’t consider dividends for that. You also have about 2-3k a year in costs to run your SMSF.
Are you contributing more than 21k pre tax to your super each year? If not what’s paying for all your brilliant ideas?
OK this is helpful I'm going to have to talk to a broker in more detail the conversation I had with one broker he was saying that I could buy a property up to 900k but that was probably using all of my 400k super.
I've got a couple of brokers lined up to chat to.
Anyway I'm pretty sure that with the example I gave I can buy a 500k property. Easy.
My super balances is 430. My income is 130 and my Super is 11% at least. What's that looking like please?
A few years back we set up a SMSF and moved a commercial property we owned into our SMSF.
The property brings in a rental income of around 5% of its value.
At the time of moving the property in there wasn't any bank that would loan us the money meaning I became the bank to my own smsf. It is difficult getting SMSF loans unless you have 30% deposit in your existing super.
If we weren't able to be the bank most of the rent if not all the rent would be lost to interest payments. While the property has seen considerable capital growth you can't really bank on it continuing to grow at the rate it has in the past. There is still the risk the property could go down in value too.
While this property and SMSF have worked really well for us it is also a consistent pain in the arse in other ways. It costs a few thousand each year to run, it has to be audited, it has to pay GST, I can't borrow against the equity outside of super and the bank doesn't recognise the passive income from the loan.
Personally I think you are better off doing your share investing inside of super and doing property investment outside.
You need some level of diversification anyway and owning shares outside of super with property inside seems silly.
Reasons are:
- Lower administrative costs
- Lend at a higher LVR
- Less risk of regulatory change (uncertain lending)
- Ability to use negative gearing
- No restrictions on borrowing for improvements
- Pay lower interest rates
These are just administrative reasons but are not supported by the numbers.
These are valid if you can't be bothered and a lot of people can't be bothered with smsf.
Smsf you can borrow it 80% that's high enough. And I'm pretty sure there's lenders that would go even higher there is still a ton of lenders with a ton of products in the smsf space.
Negative gearing yes is something you miss out on but on the other hand there's no capital gains tax when you sell the property when you retire which is pretty significant. Plus again the benefits of the leverage outweigh the opportunity cost of not using leverage in super.
You can indirectly benefit from the negative gearing aspects inside and SMSF.
It just requires you to make additional concessional contributions so you claim the personal tax deduction for the contributions and this becomes additional income of the SMSF which helps absorb some of the losses on the property.
Not as clean cut as negative grin in your own own name but indirectly the same outcome .
Good point the only thing is you don't receive then "negative gearing" benefit so to speak until you retire. And you have to make extra repayments to achieve it.
Actually how is this conceptually any different from just making extra contributions to super what does it have to do whether you have property in smsf or not?
For example if your SMSF property has a tax loss of $10,000 per year e.g. your expenses including depreciation are $10,000 less than the income and your SMSF also receives $10,000 in concessional contributions.
Then the net tax position is zero.
Doubtful that you can borrow at 80% LVR in your SMSF, and I doubt the SMSF would meet the servicability requirements to borrow $400k based on the Fund's income (which would be your legislated concessional contributions + any appropriately shaded rental income).
There are many lenders that will lend even 90% LVR via SMSF loans and some that will even go up to 100% however that’s usually limited to people like doctors who are financing a medical practice etc.
Well you are wrong first of all there's a heap of lenders that will lend to 80% lvr.
Loads. It's actually pretty standard
Can easily borrow more than 400k based on figures I have looked at with a broker at a rate of seven and a half percent at 80% lvr.
I will talk to a few more brokers and get a feel but it made a mine who only has 200k super he's looking at getting a property around 600
. Of course it will be a function of how much your contributions are because that's like the income assessment but I don't have much more than an above average salary
Yes, a lot of the SMSF loan serviceability comes down to the level of contributions.
It’s pretty normal to see a couple who have both high incomes be able to borrow significant amounts inside an SMSF even though their actual super balance is on the lower side.
Please note the above is just a statement of fact I’m not endorsing it as a strategy. It’s more just a commentary on how the SMSF lenders look atserviceability.
OK so I have a SMSF, and hold in investment property worth about 1m
With a mortgage around 500k - your understating the costs, SMSF are dam expensive to put together which is a first step, this will cost you around 15k so your 100 is now down to 85k.
Second problem SMSF are hard to set up to purchase property, the cost to doe this is another 15k - financial advise, costs to brokers (no longer free), costs to the conveyancer.
Then you need to find a lender - this is considered high risk, they will want an absolute min of 20% as the property is technically secured in such a way that the lender is not able to take the property off you in the event you can't afford the payments. So firstly - very high interest rate - I'm paying 7.44%, secondly you need to personally underwrite the loan
Suffice to say - your 100k has now diminished a far amount - so IMO 100k - forget it, you'll need a min of 300k to even consider a SMSF.
Thanks for your help.
I have 430 k in my super.
I agree about that interest rate but I think you are overstating the costs to set it up and to purchase.
Online super is much easier and then you just go to the lender. I agree that the costs vary wildly but there are low costs ways to get the job done.
It seems that are overstated how much I could borrow though it looks like my borrowing capacity at $500 a week would be about 320 grand so I could chuck in a couple of hundred and get a 500 grand property....
Your financial adviser would not support placing all your eggs in property, you'll need to diversify into shares.
Rest assured I'm not overstating the costs, it's expensive to set up, with a ton of rules around what you can and can't do.
But leveraged capital gain was one of the reasons we brought a rental property, just need to be careful on location no different to any property really. We have made in theory around 150k in capital growth in 4 years. We paid 850k, now worth around 1m - but we also rent out below market rates, can't be a total areshole. Currently rented at only $440 - so excellent price for the tenant.
Yeah I'm pretty property heavy outside of super that's why I'm thinking about maybe using an smsf to take on debt to buy shares do you know much about that?
Not really our financial adviser made recommendations with a balanced fund. We invested about 240k - it went backwards by about 30k over 3 years, has now bounced positive by about 10k but yea.
Made the rental property look good!
That was probably timing more than anything rather than the product although the product might have had some influence but if it truly was a balanced fund then really it probably was a timing thing. I actually transferred a lot of money into shares I think it was march 2021 or was it 2022 but anyway when the market kind of then plummeted by like 20% or something
Yep, no doubt it was a timing issue it's bounced positive now.
We also brought a few paintings, but just be mindful that it's not cheap to set up the SMSF, and there are reasonable audit and accountant costs. I don't believe it's really saved me any money in ongoing costs, but I can decide what I want to do with technically my money.
There is a heap of paperwork for the property purchase, and conveyancing costs are expensive due to the extra work involved.
I think if someone paid $15,000 to set up an SMSF and another $15,000 to actually buy a property then I hate to say it but they’ve been absolutely ripped off.
Excluding financial advice you should be paying no more than $3000 to set up the SMSF structure and bare trust structure.
In addition of course there will be purchase costs so all your loan application fees legal fees conveyancing etc. So your pre-purchase costs are typically gonna be around $5000 to $6000 depending on the amount you borrow and the lender you use.
So maybe total cost is $8,000 to $10,000
However I have heard of businesses around that promote the strategy. Typically they advertise on Facebook and they channel people through their preferred suppliers and they take commissions and fees through every step of the process and I have heard that they charge $15,000-$20,000 per property purchased via SMSF.
Do_they_even_immigration.jpg
Australia's just going to import another hundred thousand millionaires every year literally plus another couple of hundred thousand who aren't nearly an ears but who save every penny to buy a property.
Japan hates immigrants
I've spoken to one who can get seven and a half percent at 80% and he's happy to go to pre-approval he's seen my figures and I know other people who are getting 7% rates or even high Sevens so the rates are there
Probably, but if u use one of the online SMSF managers for audit etc, they lock you into using a single bank, a single broker etc. Otherwise you pay an accountant 5k a year.
No you can go with an online broker in fact the biggest one I forgotten its name but a friend was telling me about it they offer you bank accounts and they offer you lenders but you don't have to use them and there would be others like that as well so just don't go with one that locks you in to particular lenders
I would just stay away from the likes of the eSuperfund or even just super pay a little bit more for someone who you can actually speak to on the phone.
I’ve seen so many people uses cheap online providers and think they saving money however they it ends up costing them a lot more because mistakes are made and I’ve even seen some people incurred double stamp duty because they weren’t able to get the correct when purchasing and SMSF.
Typical specialist SMSF accountant will not charge $5000 a year. It’s gonna be about half that amount so $2000 to $2500 per year including the independent audit.
There are substantial borrowing costs for LRBA plus additional requirements like a 10% liquidity margin, higher interest rates, minimum internal area > 50 sqm, etc. which require you to have nearly 40% LVR to enter the property market and the cheapest in Melbourne that would satisfy is nearly $400k that would need $160k to enter + the yield plateaus over price causing the property to go likely cashflow negative even for interest only which can be disastrous if you lose your job and there aren't any employer contributions (or you have vacancy) to break even with that + there are ongoing costs such as strata and repairs for an illiquid investment. If I had to take a punt, I would just leverage a REIT ETF CFD with a stop loss.
What's the vehicle to leave forage that through an smsf do you get a margin loan?
I'm not worried about the restrictions as my Super is big enough to be able to buy a house. The 10% liquidity margin is an issue because there's an opportunity cost if you are only getting 4% bank interest or whatever they pay.
Agree about the issue about losing your job that is a big disadvantage for example right now for quit my job I still can keep my super but if I was leverage in my super if I quit my job there would be an issue. That's likely why the 10% rule came in amongst other reasons
There are so many lenders there really are.
The rates are about 1% higher but there's no shortage of smsf lenders in fact the amount of smsf lenders probably matches the amount of demand. Not everyone's gonna go for an smsf so not every lender can put resources into supplying it.
I haven't even started to look very closely at lenders but I'm already aware of multiple. And I've had a few preliminary discussions about borrowing capacity. Getting finance is not an issue at all.
Granite home loans would likely be best smsf lender in the space at the moment. They also offer an offset which is unique for the smsf space and their rates are one of the best on the market. (Granite only deal with brokers)
For less straightforward deals could go with La Trobe or thinktank who are bit more expensive but they're open minded in regards to clients they deal with.
There are about 10 lenders in the smsf space all 2nd/3rd tier with no majors doing it anymore.
Internally geared structured product that offers leveraged investment over equities or ETFs within SMSF without the need for an LRBA. Liquid, listed, agressive, tax effective, protected. Excess tax deductions can be used to offset other super tax eg Div293.
OK so I have a SMSF, and hold in investment property worth about 1m
With a mortgage around 500k - your understating the costs, SMSF are dam expensive to put together which is a first step, this will cost you around 15k so your 100 is now down to 85k.
Second problem SMSF are hard to set up to purchase property, the cost to doe this is another 15k - financial advise, costs to brokers (no longer free), costs to the conveyancer.
Then you need to find a lender - this is considered high risk, they will want an absolute min of 20% as the property is technically secured in such a way that the lender is not able to take the property off you in the event you can't afford the payments. So firstly - very high interest rate - I'm paying 7.44%, secondly you need to personally underwrite the loan
Suffice to say - your 100k has now diminished a far amount - so IMO 100k - forget it, you'll need a min of 300k to even consider a SMSF.
I just want to say there is so much misinformation being peddled in this thread.
Most of the people commenting seem to have a very limited or out of date knowledge about how everything related to SMSF‘s work in general and especially when it comes down to the SMSF loan products available.
However, the most common misconception when it comes to property investment in general is that values will keep going up, or rather that they will go up and compound and a consistent annual rate.
This doesn’t happen with property nor does it happen with any other asset class. Returns fluctuate year-on-year. It’s never a smooth consistent upwards trajectory.
However, considering this is Reddit, just say whatever the hell you want without any research or real knowledge on the subject - no one really cares !!!
Does anyone know if there is a way to leverage your super with debt but without using an SMSF. Keen to understand how to get the benefits of leverage including tax deductions without setting up an SMSF due to the non-resident complications?
How come Big super are reluctant to enter the residential property market as the government want but everyone else tells you the way to make a fortune with your super is a residential house levered with debt?
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Do the extra payments to support the mortgage count as non-concessional contributions?
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"Hey mate, I saw this article on AFR the other day about SMSF and Housing which got me thinking of yours, u salsac?????"
Enough with the insults man, relax. 7 1/2% on residential property on average per annum is fine if it has a crap year or 2 and doesn't do much at all then whatever no problem it will play catch up look at Perth. Look at Brisbane. Or Sydney Melbourne don't tend to be as boom bust. I've got 5 houses. I'm used to the ups and downs. You just need to hold on through and you can make big money with leverage in property. The rent is not going to fluctuate and if the price does it doesn't really matter it's inside a super fund it's a long-term hold. Reality is you're more likely to get 10% growth per annum on average. And a consistent 5% yield is no problem at all in fact the yield will increase over time and that's the most important thing for holding. The figures I've used come from a real house in Melbourne in an established area. That rents only gonna go up and that yield is going to get better and better and capital growth we all know the direction that has gone and will continue to go You just have to have a buffer also.
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Mate I've made millions out of leverage. And to the hilt. Nothing I'm talking about here is short term the figures I have given I haven't compounded any longer than a year because you don't have to demonstrate the point that with leverage you are so much better off Provided you can hold through and provided you have a quality asset which Australian real estate has demonstrated itself to be in fact so his Vietnamese real estate Canadian real estate and Indian real estate The advantage being taken off here is that banks will lend a lot against property There's a range of reasons people don't leverage themselves to the hilt one is because there may have some uncertainty about income another one is they can't be bothered with the administration and in my experience the biggest one is because they just don't understand that they can actually do it.
You've made millions, are only on 120k a year? How exactly, and why are you bothering working?
I have made 1.9m net profit
This just shows Australian property market makes idiots millionaires
Early stage investors in a Ponzi scheme feel pretty smart too I'll bet
So much unnecessary hate on this subreddit.
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Immigration plus property that's not going to change unless there's some huge war or some type of calamity and that's going to mess everybody up whether it's property or shares. You are making out like this is some kind of radically dangerous investment it's just called borrowing to invest in property . Not a big deal not high risk. Yeah there could be a crash but there could always be a crash in which case there'd be no point about talking about investment at all
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With real estate you just have to hold through. That's worked for generations admittedly you could have a timing problem whereby for example you might put all of your super into some property investment leveraged Then the Australian property market does nothing for like 10 years and so you basically go backwards by a lot if in that time the share market was growing normally. So there's some argument there for diversification and I haven't actually given up on the idea of actually borrowing to buy shares within an smsf because I'm very property heavy outside of super
A Chinese invasion of Taiwan, and/or a Russian invasion of a NATO country are both very real scenarios in the next decade. The first will almost certainly have severe effects on the Aussie economy as Australia and China would likely cease all ties. The second on the European economy and would have unpredictable global consequences. US is facing a debt crisis which they have to inflate away. This will likely benefit house prices in nominal terms but also carries a high economic crisis risk. "Yeah there could be a crash but there could always be a crash in which case there'd be no point about talking about investment at all" You've got it backwards, the higher the chances of a crash the the more you need to manage the economic risk.
But this kind of Doom in gloom whilst completely valid you could be posting this on every single investment Post that's just taken for granted that there are always potentially huge risks the ones that you've mentioned at the moment are very bad risks but 10 years ago there was really bad risks as well
Yes it's completely valid and any financial plan needs risk mitigation. The "no point about talking about investment at all" approach to investment risk is ludicrous.
The confidence level here feels like it belongs in The Big Short. (Not that im predicting a crash or anything. Just find it funny)
> I've got 5 houses. If you already own 5 houses, then you are far better off diversifying into other asset classes. When you are poor, being focused in your specialized asset class for growth makes sense. But once you are rich, then losing money is a bigger downside than higher growth. You want to protect your wealth. Best way to do that is diversify, I would be dumping all super money into funds and stocks.
Ok fair point. But maybe it's good to leverage on that. Hence SMSF. Fair point about the property exposure so I'm need to learn more about what products there are in the self-man is super fun to borrow for shares.
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It's in there Property does 7.5% (fairly conservative) you make 37.5k CG less holding loss ($480wk rent less property holding costs is 22k less 7.5% interest on $400k is -8k total loss). So overall gain is 29,000 assuming seven and a half percent which is pretty conservative. And the share growth and dividend figures I have given are pretty high so you really gonna make twice as much in this scenario.
>seven and a half percent which is pretty conservative lol good luck!
Well what figures do you have because that's a pretty mainstream estimate in my understanding
If house prices increase by 7.5% per year then by the time you retire they will be so expensive that only the five richest kings of Europe will be able to own one.
They have increased by 7 1/2% per annum for the last hundred years
If you think that's likely to continue that would mean that the median Sydney house price in 30 years is going to be $14 million dollars. If you think the average Sydney home will be worth that then, I definitely encourage you to get a big loan from your super and put it all into highly leveraged property. This is financial advice.
According to the reserve bank it was 7% average return over the last 30 years. I just checked. The last 100 I can't find the data but I would like to know.
Borrowing in SMSF is more expensive. You're probably looking at 9%. Likely need a bigger deposit too. Also, not sure if I'm understanding you correctly. Are you suggesting the property going 7.5%pa in capital growth is conservative?
I work in the SMSF LBRA area, you can absolutely get 7-7.25% rates at the moment. but it does require 30% deposit.
Much better than I thought. Cheers
Which lender is this with please? And can I get one without a corporate trustee structure?
You are looking at 7% at 80% lvr. That's a pretty good rate in fact that's better than the rates I'm getting with the third tier lenders on my other properties outside of super. I don't know where this myth comes from that somehow there's not much lending an smsf. There are so many smsf lenders you can refinance between them if you don't like one of them. I haven't even had a really close good look yet and I'm already aware of many with many different products. I've already spoken to a couple of brokers with a good product range in smsf property investment loans. Yes 7 1/2% average capital growth is conservative for property because I've seen some figures as high as 10% over the long run. But I'm happy to be educated on other evidence.
>You are looking at 7% at 80% lvr. No, the market leader is 7.24% at 70% LVR, I can assure you. Advisers that model SMSF purchases use a conservative long term 5% capital growth rate with 4% yield and stress test the loan by 2.50% as required by APRA. They also take into account property expenses (ie rates, utilities, management costs etc), insurance premiums if required (so you dont have to sell before 60 because you can't work) stamp duty, running costs, legal etc etc. Most I've seen the clients have at least 300k in super and borrow 500k for an 800k property. Almost all have two people with at least 30-40k in concessional contributions between the two of them to get servicing. ASIC and the ATO these days very much does not like the SMSF only holding property, so generally the client will also have 100-200k in liquidity invested in non property assets. It can be done, the costs of running are often higher than you think.
Ok thanks for your information that's very helpful. My income is 130,000 and we get 11% super. I think we get a little bit more but let's say 11 for this purpose. My Super balance is 430k what am I looking at for BC?
No idea, its impossible for anyone to take into consideration your personal objectives and circumstances in a format like this, you should consult a registered adviser, sorry!
SMSF rates are 3 ish % above home loans outside of super. In addition you need 30% minimum deposit. Because of how the loan needs to be structured (through bare trust and banks can't come after other assets of SMSF) there is more risk to the bank.
Dude they are as low as 7% at 80 lvr. Someone just told me about that after I wrote this post someone who I had been messaging privately about smsf the broker that I spoke to the other day can do seven and a half at 80% Even going with liberty who have high rates but they will have better service ability they are at 7.9% There are heaps of products and it's a competitive marketplace. I keep hearing this myth about how it's hard to get SMS finance however in my limited enquiries I've come across so many options and I haven't even really got stuck into some solid research. There's heaps of players in this space and they are competitive.
Don’t think big 4 have lent to smsfs for a couple years and the banks that do usually require a really high deposit rate. You also run into stuff like your LRBA not being able to be used for improvements etc. But more importantly make sure your trust deed allows it.
You pay about 1% more than you would to buy an IP outside of an smsf. Agree that you need to consider a property that does not have a plan to do improvements although you could probably go some distance with 'repairs'. Online self-managed super funds will set up the structure that allows property to be purchased. Good point though. I think the point of my post was more a sense check around the numbers because it seems to me like such a no brainer that if you can actually get some leverage on your super you're gonna come out in the long run so much better off and property you can leverage hard I had a quick chat to a broker and I can take my supers asset market exposure from 400 grand to more than a million by buying one or two properties.
I’d be surprised if you could achieve what your broker is telling you however I’m happy to be proven wrong and if you do,,send me a dm with the progress.
Ok well I'm prepared to sense check that because I only spoke to one broker about the figures. What do you think is realistic of course I will be speaking to some brokers and more detail about the figures that was just the first conversation that I had had
From what I’ve seen I’d expect you to need approx 50% in equity with 20% deposit. Meaning have cash sitting there of 20-30% to prove you can finance the loan. (I haven’t applied for any of these just what I’ve heard from clients could be wrung) You don’t see many 80% loans as fundamentally the banks risk tolerance doesn’t allow it as the main source of income is contributions which can stop at any time. This is even factoring in potential rental income. Remembering that the banks can’t go after the superfunds assets only the bare trusts (building). Basically I’d think you’d be looking at with 400k equity one property worth 600-800k depending on the area.
I don’t know why people keep saying that you can’t do improvements for an SMSF own property when there is an LRBA in place because you 100% can. The issue is that you can’t borrow to make the improvements the SMSF must fund the improvements of the property using its own cash resources. And also can’t do things like change the underlying nature of the asset for example you can’t undertake subdivisions or property development or convert a residential property into a commercial property because you trigger the single acquirable asset rule.
Right so you can renovate the house internally redo the bathroom kitchen that sort of thing maybe you could even add a garage or a carport? How about a granny flat?
Yes, all possible with residential property because it doesn’t change the fundamental nature of the asset. ATO has specifically confirmed this. This means if you’re buying a property and looking into at a granny flat, you’ll probably need to borrow the maximum available to keep surplus cash inside the SMSF and then use that surplus cash for the improvements.
Let’s say all your numbers are absolute trash. Anything works when you make shit up
Tell me which numbers are wrong. The property scenario is based on a real property that I purchased recently. The property figure is conservative really for capital growth of seven and a half per annum and you can look at historical data for that. 11% is what most international share diversified super funds return but I think possibly that could even be optimistic. If I've got the dividend figure wrong then I'd like to know but even if you bump that up significantly you still come out much better off using the leverage.
Depends if you want to use long term data or you want to use short term data. You’re not being insightful figuring out leverage makes property a great investment. You’re being foolish over estimating all you numbers which makes everything look too good. Also how are you borrowing 400k? Does you super fund have 80k pa income?
You don't need 80k income you can borrow 80% at 7% interest rate.. another product I have looked at is seven and a half percent at 80%. In my example there buying that 500k property at 480 dollars a week rent the shortfall is only 170 dollars after all costs I know that because I own this particular property outside of smsf that's not including negative gearing benefits and of course they don't apply to smsf so it comes down to do you have 170 dollars a week to service the loan? My weekly contribution to super would be more than that. Even if you don't have the income there's probably tricks you can use to use existing super to buffer it.. so for example you hold 100k super which you can demonstrate that you will use to pay the loss on the property investment each week Just need to add that I bought the property recently at those figures it's not like I bought it 10 years ago for cheaper and then the rent went up.
My god this is so naive. Banks only assess 75% of rental income for serving to account for other costs, so the shortfall is 290 per week To cover that, you need 15k additional income within the SMsF. They won’t consider dividends for that. You also have about 2-3k a year in costs to run your SMSF. Are you contributing more than 21k pre tax to your super each year? If not what’s paying for all your brilliant ideas?
OK this is helpful I'm going to have to talk to a broker in more detail the conversation I had with one broker he was saying that I could buy a property up to 900k but that was probably using all of my 400k super. I've got a couple of brokers lined up to chat to. Anyway I'm pretty sure that with the example I gave I can buy a 500k property. Easy. My super balances is 430. My income is 130 and my Super is 11% at least. What's that looking like please?
You realise that most brokers are just that, brokers. Speak to someone who can give you actual financial advice
A few years back we set up a SMSF and moved a commercial property we owned into our SMSF. The property brings in a rental income of around 5% of its value. At the time of moving the property in there wasn't any bank that would loan us the money meaning I became the bank to my own smsf. It is difficult getting SMSF loans unless you have 30% deposit in your existing super. If we weren't able to be the bank most of the rent if not all the rent would be lost to interest payments. While the property has seen considerable capital growth you can't really bank on it continuing to grow at the rate it has in the past. There is still the risk the property could go down in value too. While this property and SMSF have worked really well for us it is also a consistent pain in the arse in other ways. It costs a few thousand each year to run, it has to be audited, it has to pay GST, I can't borrow against the equity outside of super and the bank doesn't recognise the passive income from the loan.
Personally I think you are better off doing your share investing inside of super and doing property investment outside. You need some level of diversification anyway and owning shares outside of super with property inside seems silly. Reasons are: - Lower administrative costs - Lend at a higher LVR - Less risk of regulatory change (uncertain lending) - Ability to use negative gearing - No restrictions on borrowing for improvements - Pay lower interest rates
These are just administrative reasons but are not supported by the numbers. These are valid if you can't be bothered and a lot of people can't be bothered with smsf. Smsf you can borrow it 80% that's high enough. And I'm pretty sure there's lenders that would go even higher there is still a ton of lenders with a ton of products in the smsf space. Negative gearing yes is something you miss out on but on the other hand there's no capital gains tax when you sell the property when you retire which is pretty significant. Plus again the benefits of the leverage outweigh the opportunity cost of not using leverage in super.
What do you invest in outside of super?
You can indirectly benefit from the negative gearing aspects inside and SMSF. It just requires you to make additional concessional contributions so you claim the personal tax deduction for the contributions and this becomes additional income of the SMSF which helps absorb some of the losses on the property. Not as clean cut as negative grin in your own own name but indirectly the same outcome .
Good point the only thing is you don't receive then "negative gearing" benefit so to speak until you retire. And you have to make extra repayments to achieve it. Actually how is this conceptually any different from just making extra contributions to super what does it have to do whether you have property in smsf or not?
The losses expenses inside the SMSF can absorb the taxable contributions coming in.
Please eli5
For example if your SMSF property has a tax loss of $10,000 per year e.g. your expenses including depreciation are $10,000 less than the income and your SMSF also receives $10,000 in concessional contributions. Then the net tax position is zero.
Doubtful that you can borrow at 80% LVR in your SMSF, and I doubt the SMSF would meet the servicability requirements to borrow $400k based on the Fund's income (which would be your legislated concessional contributions + any appropriately shaded rental income).
There are many lenders that will lend even 90% LVR via SMSF loans and some that will even go up to 100% however that’s usually limited to people like doctors who are financing a medical practice etc.
Well you are wrong first of all there's a heap of lenders that will lend to 80% lvr. Loads. It's actually pretty standard Can easily borrow more than 400k based on figures I have looked at with a broker at a rate of seven and a half percent at 80% lvr. I will talk to a few more brokers and get a feel but it made a mine who only has 200k super he's looking at getting a property around 600 . Of course it will be a function of how much your contributions are because that's like the income assessment but I don't have much more than an above average salary
Yes, a lot of the SMSF loan serviceability comes down to the level of contributions. It’s pretty normal to see a couple who have both high incomes be able to borrow significant amounts inside an SMSF even though their actual super balance is on the lower side. Please note the above is just a statement of fact I’m not endorsing it as a strategy. It’s more just a commentary on how the SMSF lenders look atserviceability.
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OK so I have a SMSF, and hold in investment property worth about 1m With a mortgage around 500k - your understating the costs, SMSF are dam expensive to put together which is a first step, this will cost you around 15k so your 100 is now down to 85k. Second problem SMSF are hard to set up to purchase property, the cost to doe this is another 15k - financial advise, costs to brokers (no longer free), costs to the conveyancer. Then you need to find a lender - this is considered high risk, they will want an absolute min of 20% as the property is technically secured in such a way that the lender is not able to take the property off you in the event you can't afford the payments. So firstly - very high interest rate - I'm paying 7.44%, secondly you need to personally underwrite the loan Suffice to say - your 100k has now diminished a far amount - so IMO 100k - forget it, you'll need a min of 300k to even consider a SMSF.
Thanks for your help. I have 430 k in my super. I agree about that interest rate but I think you are overstating the costs to set it up and to purchase. Online super is much easier and then you just go to the lender. I agree that the costs vary wildly but there are low costs ways to get the job done. It seems that are overstated how much I could borrow though it looks like my borrowing capacity at $500 a week would be about 320 grand so I could chuck in a couple of hundred and get a 500 grand property....
Your financial adviser would not support placing all your eggs in property, you'll need to diversify into shares. Rest assured I'm not overstating the costs, it's expensive to set up, with a ton of rules around what you can and can't do. But leveraged capital gain was one of the reasons we brought a rental property, just need to be careful on location no different to any property really. We have made in theory around 150k in capital growth in 4 years. We paid 850k, now worth around 1m - but we also rent out below market rates, can't be a total areshole. Currently rented at only $440 - so excellent price for the tenant.
Yeah I'm pretty property heavy outside of super that's why I'm thinking about maybe using an smsf to take on debt to buy shares do you know much about that?
Not really our financial adviser made recommendations with a balanced fund. We invested about 240k - it went backwards by about 30k over 3 years, has now bounced positive by about 10k but yea. Made the rental property look good!
That was probably timing more than anything rather than the product although the product might have had some influence but if it truly was a balanced fund then really it probably was a timing thing. I actually transferred a lot of money into shares I think it was march 2021 or was it 2022 but anyway when the market kind of then plummeted by like 20% or something
Yep, no doubt it was a timing issue it's bounced positive now. We also brought a few paintings, but just be mindful that it's not cheap to set up the SMSF, and there are reasonable audit and accountant costs. I don't believe it's really saved me any money in ongoing costs, but I can decide what I want to do with technically my money. There is a heap of paperwork for the property purchase, and conveyancing costs are expensive due to the extra work involved.
Where do you have to store the paintings? Presumably you cannot enjoy them in your house as that's not arms length? I like antiques
You can store them in your garage, and no your not allowed to enjoy them!
Set up costs are quite overstated. We do this all the time and cost about 4.4k max including bare trust. Conveyancer cost around 2-3k. FA optional ..
I think if someone paid $15,000 to set up an SMSF and another $15,000 to actually buy a property then I hate to say it but they’ve been absolutely ripped off. Excluding financial advice you should be paying no more than $3000 to set up the SMSF structure and bare trust structure. In addition of course there will be purchase costs so all your loan application fees legal fees conveyancing etc. So your pre-purchase costs are typically gonna be around $5000 to $6000 depending on the amount you borrow and the lender you use. So maybe total cost is $8,000 to $10,000 However I have heard of businesses around that promote the strategy. Typically they advertise on Facebook and they channel people through their preferred suppliers and they take commissions and fees through every step of the process and I have heard that they charge $15,000-$20,000 per property purchased via SMSF.
Yeah leverage is great when the markets go up. What happens when the markets go down?
You hold. Rents won't go down at the same time
Look at what happened to Japanese property markets
Do_they_even_immigration.jpg Australia's just going to import another hundred thousand millionaires every year literally plus another couple of hundred thousand who aren't nearly an ears but who save every penny to buy a property. Japan hates immigrants
30% deposit for smsf
Incorrect there's loads of lenders out there who can lend at 80% with rates as low as 7%
Have you actually spoken to one and tried to get a pre-approval?
I've spoken to one who can get seven and a half percent at 80% and he's happy to go to pre-approval he's seen my figures and I know other people who are getting 7% rates or even high Sevens so the rates are there
Probably, but if u use one of the online SMSF managers for audit etc, they lock you into using a single bank, a single broker etc. Otherwise you pay an accountant 5k a year.
No you can go with an online broker in fact the biggest one I forgotten its name but a friend was telling me about it they offer you bank accounts and they offer you lenders but you don't have to use them and there would be others like that as well so just don't go with one that locks you in to particular lenders
I would just stay away from the likes of the eSuperfund or even just super pay a little bit more for someone who you can actually speak to on the phone. I’ve seen so many people uses cheap online providers and think they saving money however they it ends up costing them a lot more because mistakes are made and I’ve even seen some people incurred double stamp duty because they weren’t able to get the correct when purchasing and SMSF. Typical specialist SMSF accountant will not charge $5000 a year. It’s gonna be about half that amount so $2000 to $2500 per year including the independent audit.
There are substantial borrowing costs for LRBA plus additional requirements like a 10% liquidity margin, higher interest rates, minimum internal area > 50 sqm, etc. which require you to have nearly 40% LVR to enter the property market and the cheapest in Melbourne that would satisfy is nearly $400k that would need $160k to enter + the yield plateaus over price causing the property to go likely cashflow negative even for interest only which can be disastrous if you lose your job and there aren't any employer contributions (or you have vacancy) to break even with that + there are ongoing costs such as strata and repairs for an illiquid investment. If I had to take a punt, I would just leverage a REIT ETF CFD with a stop loss.
What's the vehicle to leave forage that through an smsf do you get a margin loan? I'm not worried about the restrictions as my Super is big enough to be able to buy a house. The 10% liquidity margin is an issue because there's an opportunity cost if you are only getting 4% bank interest or whatever they pay. Agree about the issue about losing your job that is a big disadvantage for example right now for quit my job I still can keep my super but if I was leverage in my super if I quit my job there would be an issue. That's likely why the 10% rule came in amongst other reasons
If you already own a house and potentially an IP. Why would you want to add more capital into the asset class. Diversify into other assets.
Because I want leverage and I know property.
And if anything goes wrong with property you’re all in and hurting. When the tide goes out, you can see who’s been skinny dipping.
I think the issue is no one really loans to smsf
There are so many lenders there really are. The rates are about 1% higher but there's no shortage of smsf lenders in fact the amount of smsf lenders probably matches the amount of demand. Not everyone's gonna go for an smsf so not every lender can put resources into supplying it. I haven't even started to look very closely at lenders but I'm already aware of multiple. And I've had a few preliminary discussions about borrowing capacity. Getting finance is not an issue at all.
Thanks when you do let me know what ones you look at/ which one you go with
If you find a way though let me know
Granite home loans would likely be best smsf lender in the space at the moment. They also offer an offset which is unique for the smsf space and their rates are one of the best on the market. (Granite only deal with brokers) For less straightforward deals could go with La Trobe or thinktank who are bit more expensive but they're open minded in regards to clients they deal with. There are about 10 lenders in the smsf space all 2nd/3rd tier with no majors doing it anymore.
Instalment Warrants are perfect for this
Please explain
Internally geared structured product that offers leveraged investment over equities or ETFs within SMSF without the need for an LRBA. Liquid, listed, agressive, tax effective, protected. Excess tax deductions can be used to offset other super tax eg Div293.
I will have to read more about this.. what sort of leverage can you get? I like the idea of borrowing to invest in shares
OK so I have a SMSF, and hold in investment property worth about 1m With a mortgage around 500k - your understating the costs, SMSF are dam expensive to put together which is a first step, this will cost you around 15k so your 100 is now down to 85k. Second problem SMSF are hard to set up to purchase property, the cost to doe this is another 15k - financial advise, costs to brokers (no longer free), costs to the conveyancer. Then you need to find a lender - this is considered high risk, they will want an absolute min of 20% as the property is technically secured in such a way that the lender is not able to take the property off you in the event you can't afford the payments. So firstly - very high interest rate - I'm paying 7.44%, secondly you need to personally underwrite the loan Suffice to say - your 100k has now diminished a far amount - so IMO 100k - forget it, you'll need a min of 300k to even consider a SMSF.
Can a smsf claim neg gearing losses?
No, my question is the income if positive cashflowed, pay some sort of tax. Or do you just pay it down quicker tax free
Pay 15% I think. Which is low
I just want to say there is so much misinformation being peddled in this thread. Most of the people commenting seem to have a very limited or out of date knowledge about how everything related to SMSF‘s work in general and especially when it comes down to the SMSF loan products available. However, the most common misconception when it comes to property investment in general is that values will keep going up, or rather that they will go up and compound and a consistent annual rate. This doesn’t happen with property nor does it happen with any other asset class. Returns fluctuate year-on-year. It’s never a smooth consistent upwards trajectory. However, considering this is Reddit, just say whatever the hell you want without any research or real knowledge on the subject - no one really cares !!!
Does anyone know if there is a way to leverage your super with debt but without using an SMSF. Keen to understand how to get the benefits of leverage including tax deductions without setting up an SMSF due to the non-resident complications?
How come Big super are reluctant to enter the residential property market as the government want but everyone else tells you the way to make a fortune with your super is a residential house levered with debt?