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Making SMSF investing easy
For investors seeking to take control of their super funds and grow their borrowing capacity, SMSFs present multiple benefits. BFP Property Buyer’s Benjamin Plohl recently delved into the complexities of the investment structure.
BFP Property Buyer founder Benjamin Plohl and The Smart Property Investment Show host Phil Tarrant have delved into the key points of self-managed super funds (SMSFs), which can enhance investors’ borrowing capacity and bring many other benefits.
SMSFs have been a growing sector within property investment, with about 650,000 SMSF funds and over 1.2 million trustees in Australia.
Plohl said that many people resort to SMSFs as they seek out new opportunities despite hitting a limit in their personal borrowing capacity.
“Self-managed super fund borrowings [are] completely separate to your own personal borrowings,” he said.
“We see a lot of people explore that as an option, and I think it’s fair to say that it’s not for everyone.”
Plohl explained that many benefits can arise from utilising SMSFs, including having control over their super and having the flexibility to explore different asset classes.
Additionally, he encouraged investors to use self-managed super funds to leverage their borrowing capacities.
“The ability to go to the bank and borrow money to leverage up to a high value asset is huge, and then getting a compound return on that higher value over a long period of time,” he said.
“That can have a significant impact on what you’re going to have in retirement versus what you don’t have in retirement.”
Further, Plohl said that there are tax benefits to be gained through SMSFs, which offer the most concessionally taxed environment in the country.
“Strategies that we see or we talk about are simple things like buying real estate while you’re in that accumulation phase in a self-managed super fund, holding it once you retire, then flip into a pension mode,” he said.
“Everything in pension mode is tax-free. So you could then sell this asset 20 years down the track, that may have a nice capital gain, and you won’t pay a penny in tax.”
To get the most out of SMSFs, Plohl also advised investors to take advantage of market cycles, a tactic that has been successful among many.
“If you can time your entry into a market, buy a property and then sell it out once that market has seen a good ROI, then the capital gains tax you pay is quite low, could be 10 per cent if you held the asset for greater than a year,” he said.
“So it’s such a concessionally taxed environment that trading properties can start to make sense.”
However, there are risks involved, as investors need to time their entry into the market at the right time and understand its cycles before exiting to achieve the desired gain.
“I know people did it as the Perth market was rising and then started to pull out, and then using that nest egg to buy a bigger asset, or I’ve seen a lot of them then push it into commercial and say, OK,” Plohl said.
While SMSFs have many advantages, there is also a diversification risk at play, as investors have to make all the decisions themselves.
Plohl said investors needs to make sure they are making all the right decisions or they could lose their money.
“Diversification is something that is spoken about a lot. So if you’re putting your self-managed super fund directly into property, the diversification risk is definitely there,” he said.
Finally, he said investors should stay informed about legislation and be aware of potential breaches if SMSF assets are used for personal gain, advising them to consult experts if unsure.
“Get some good advice from your accountant or self-managed super fund auditor just to make sure that you know you’re not spending a night or two in the house when you shouldn’t be,” Plohl concluded.
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