Red light on SMSF property investment
Regulations on promoting borrowing through your super fund to buy a property are vague and in limbo, with the government concerned but reluctant to step in so far. So the average property-loving Aussie, disappointed by poor returns since the GFC and with 10-20 years to retirement, has a big target on their back.
The spruikers are out in force with promises of seemingly easy 10% to 20%+ returns a year being promoted as easily achievable. This despite the property market being lacklustre in most states for much of the last five years.
If you thought the days of a free lunch while you learned about the deal of lifetime in a timeshare or a gold coast apartment were over, be prepared. The latest heavy duty sales pitch on Buying Property through Superannuation may be more subtle and promoted through Facebook, a newsletter or a free e-book. It pays to be sceptical.
Just who has recommended the purchase through an SMSF? A real estate agent is the expert in property in your locality, not in investing through a super fund. A mortgage broker can get you the best interest rate on your loan, but rarely do they have property and SMSF expertise.
Your accountant or financial planner can assess the strategy, help with the right structure and ensure you're compliant, but is rarely an expert in identifying the property for you.
Like most heavily promoted schemes you should question what is a decent strategy to use in building your retirement wealth. Like any investment, you must still buy in the right place and for the right price and do your research, while being prepared to walk away from more than a few "deals".
Once the "we can do it all for you" marketers move in you have to question the price of convenience as they pocket 6% to 10% commissions.
They are light on details of the risk involved and reluctant to make you aware of the risks, which are amplified by the borrowing and the SMSF legislation which has heavy penalties for breaching the rules and many other traps. You must be prepared to examine the downside yourself.
Question the assumptions on growth, income and guaranteed rental periods on offer.
Always get a third party opinion from someone not involved in the network recommending the deal. If offered a free SMSF or trust setup and/or accounting and conveyancing by the promoter, you have to understand you are paying for this.
Who has recommended the purchase through an SMSF? Always seek independent advice.
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