Are you considering or have you got borrowings for a property in your Self-Managed Super fund (SMSF)? As with all new opportunities, caution and care are always essential. There are significant penalties for breach of the laws, as well as risks with poor choice of location, especially since many suburbs have curbed capital growth the last few years. In addition, while there are certainly benefits to holding property in a long-term savings vehicle like superannuation. But holding real estate through an SMSF comes with certain considerations. For example, when you go into pension phase, be aware you’ll be drawing money from the fund, and maybe lump sums but usually pensions/income streams, and then you need to take into account the contingencies of cash flow to allow the SMSF to be able to pay the pension.
Katarina Taurian reported at SMSF Advisor –
While concerns about SMSFs and geared property have not previously been seen as an issue due to statistics that indicate modest exposure, more recent data from Multiport show there has been rapid growth in the gearing of real estate within SMSFs.
Australian Taxation Office (ATO) figures also show SMSFs are gradually increasing their exposure to commercial and residential real estate.
“Recent worries expressed by [Bank of Queensland] chief executive officer Stuart Grimshaw about the rapid growth of leveraged purchases of real estate by SMSFs… deserve some attention,” said Mr Baker.
“When a bank CEO – who after all is in the business of selling loans – rings the alarm bells about leveraged real estate and SMSFs, it flags potential problems which even incumbents need to keep in mind.”
David Cantley, general manager at Future Estate, raised similar concerns, saying SMSFs were not originally set up for the purpose of gearing.
“Traditionally, super is for retirement… You’re not meant to have lending against it, [because that] opens up a risk,” Mr Cantley told SMSF Adviser.
“There are advantages for gearing within super, but there are also disadvantages for it,” he said. “A lot of people have lost their super by not having enough hands-on knowledge about this.”
So like always, seek the advice of several advisors and experts – no-one knows it all. Ask around, keep reading and learning to increase your knowledge and be able to “self-advise”, as we encourage at SuperBenefit.
Interested to know what Self-Managed Super (SMSF) is all about, and if it is for you? We have FREE seminars and bonuses every month – Self Managed Super Fund Roadmap (all you need to know) see 1 SMSF – FREE Seminars