I've been receiving numerous inquiries about SMSF loans for property investment lately, and we've been hosting educational workshops on this topic for clients and the public. My main observation is that many people are jumping on the bandwagon without fully understanding the additional risks and costs involved. Here are some essential questions to consider before starting the process:
Are you ready to seek, take, and follow advice? This is a complex area with significant penalties for mistakes. Unless you're willing to learn the rules, follow them, complete the necessary paperwork, and pay the initial setup costs, you should reconsider. This is not a get-rich-quick scheme.
Are you considering this option because you've run out of equity for property purchases in your own name, or are you genuinely interested in using property as part of a diversified strategy to meet your retirement income needs? Superannuation funds should focus on providing for your retirement, so ensure this is your primary intent.
Would the prospective property investment stand up to a proper assessment of its potential without the tax benefits allowed in this superannuation strategy? If an investment doesn't make sense under normal circumstances, do you really want to rely on future governments to keep their hands off the Superannuation pie to meet your retirement needs?
If you attended a seminar where you were offered a property, do you know what commission/fee/marketing allowance the promoter is getting as part of the deal? For example, if you pay $6-$10K to set up the SMSF structure, $10-$20K in Stamp Duty, and the promoter gets $17,500 (5% on a $350K property), the property needs to grow by at least 10%-15% before you break even. Forbes' Australian Property Market Outlook 2024 forecasts a 4-5% growth in most capital cities.
Are you prepared to do the hard work yourself, research a decent deal in an area you understand, and ensure you're paying a fair price for a property with rental and growth potential over the long term?
Property can be a great part of a long-term savings portfolio, but like every investment, you need to do the groundwork. The current hype has attracted spruikers who promise much but deliver little long-term. Seek out professionals with an established reputation in the property sector, and always do simple things like a Google search on the person or business along with the words “scam” or “complaint.”
I hope these thoughts have been helpful. Please share any additional questions investors should ask, as this is not an exhaustive list.
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