Tax and legal advice
Trevor Thompson

Avoiding disaster in your SMSF

By Trevor Thompson

Investing in property through your SMSF can help you build your retirement nest egg – but things can go wrong. Understanding the realities of the market can help you prepare before taking the plunge. 

Blogger: Trevor Thompson, senior partner, Insight Wealth Partners

Let’s assume you haven’t been hiding under a rock and you know about using your self-managed super fund (SMSF) to invest in property. I’ve even seen it advertised on the side of buses. It appears to be the flavour of the month – a guaranteed way to win in the retirement saving race. Or is it? What can go wrong? Property is always a good investment, isn’t it?

Before we start, I’m not getting into the property-versus-shares debate that seems to go on between financial planners and real estate agents. The most successful investors I have met don’t have this argument because they have both. It’s called diversification!

So what problems have I seen?

An unscrupulous financial planner was in business with an equally unscrupulous mortgage broker. The client was refinancing a home loan and other debt. The mortgage broker noticed that another $70,000 was available to take the client to the 80 per cent loan-to-value ratio (LVR). The financial planner produced a detailed Statement of Advice (SoA) explaining the SMSF borrowing strategy. The SoA stated that the client’s super balances were too small to afford this strategy, BUT “If you were able to make a contribution of, say, $70,000, you could proceed”.

It was a “miraculous coincidence” the contribution he used as an example was exactly how much equity the client could utilise. Yeah, right!

I also know of situations where people have received phone calls to attend a property seminar. By the end of the day, the spruiker has taken them to his friendly lawyer who has established an SMSF that has signed a contract to buy an off-the-plan apartment.

It’s safe to say these people were put under pressure and didn’t get the best price on the apartment. The next most common issue I see is the lack of an exit strategy. I’ve met quite a few people in their late 50s, even early 60s, who have heard about turning the employer contribution into bricks and mortar and want someone to help set it up.

My question is always, “How does this strategy fit in with your retirement plans?”. Sadly, that is where the blank stare response features too prominently. The only consideration seems to be “property is good”.

If you own the property by the time you retire, capital growth below your expectations will not send you broke because you will have a rental income stream. If you do this five years before you retire, with no hope of paying the loan off, you really are making yourself a forced seller at retirement – with some pretty significant set-up costs to recover.

If the property market is poor, then you’re working longer – simple as that. If there is an overall theme in the poor decision-making around borrowing in super, I would sum it up as an attitude of “it’s not my money”. It seems easy to spend money you thought you couldn’t touch, and really attractive to turn those mystifying statements that get a cursory glance into your own real estate investment. This often leads to the abandonment of due diligence.

Successful property investors can tell you how to select a property better than I can (I legally can’t), how to negotiate the right price, pick the right location and how to have an effective exit strategy. All these rules apply to funding a property purchase through superannuation, too.

Your retirement is important. If you don’t remember that, the regulator may succumb to some of the pressure from industry press to tighten this up.

The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances. 

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About the Blogger

Trevor Thompson

Trevor Thompson

Married with a “Brady Bunch”, Trevor Thompson commenced his financial planning career in 1994. Trevor has a Diploma of Financial Planning from Deakin University and has been a Certified Financial Planner since 2001. He has won numerous awards including twice being Financial Adviser of the year at RACV Financial Services and Risk Adviser of the Year at Perpetual Private.

Trevor is a senior partner at Insight Wealth Partners

Email:
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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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    • Why Brisbane is a good investment option right now<\/li>\r\n
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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1194 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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