I've been receiving numerous inquiries about SMSF loans for property investment, and we've been hosting educational seminars 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 you start the process:
- Are you ready to seek, take, and follow advice? This is not an area to take lightly. The penalties for mistakes can be costly and time-consuming. If you're not prepared to learn the rules, follow them, do the necessary paperwork, and pay the initial setup costs, then STOP NOW! Look elsewhere for a quick profit 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? Using superannuation funds means the focus must be on providing for your retirement, and that should be the primary intent of the investment.
- 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 hold up 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?
- Have you attended a seminar where you were offered a property? If so, do you know what commission/fee/marketing allowance the promoter is getting as part of the deal? If you pay $6-$10K to set up the SMSF structure, $10-$20K Stamp Duty, and the promoter gets $17,500 (which is 5% on a $350K property), then you will need the property 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 are 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 have 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 comment if you know of other questions investors should ask, as this is not an exhaustive list.
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