In recent times, some sectors of the pension industry have expressed concerns about the level of interest in the property investment by the super self-managed fund (SMSF) trustees. The main concern seems to be around the use and growth potential in use of a special type of indirect loan available to self managed super fund healers.
Investing directly in real estate has always been a feature of SMSF investment, although over the past 10 years the percentage of total SMSF assets allocated to the property has remained within a fairly narrow range of between 12 and 16 percent of the total SMSF assets. You can solve your doubts contacting smsfselfmanagedsuperfund.com.au.
Understandself managed superannuation
A real estate investment usually offers two types of returns to investors, such as a self managed superannuation. Your fund receives rent from renters in return for leasing the property, and your fund may receive a capital gain on the sale of the property. A capital gain occurs when an investor sells an investment for more than was paid for the investment, taking into account the purchase, sale and operating costs.
In general, direct ownership is a suitable investment for an SMSF since this category of assets has played a significant role in the investment strategies of many SMSFs. As an SMSF administrator, the most important question to ask is if investing in property is appropriate for your SMSF, and for your SMSF members.
In view of the investment strategy of its fund
Deciding whether a property investment – such as a house, apartment or store – is suitable for your SMSF depends mainly on the investment strategy of your fund, which has to take into account important considerations including the risk profile of your fund, Your fund’s diversification policy and any cash flow requirements (for example, fund expenses and benefits payments). You also need to consider the tax implications of any investment property.
By investing directly in the property, you also need to take into consideration the time it takes to manage the property even when you appoint a real estate agent to manage the property for you. Depending on where the property is located, you may also have to allow periods when the property may be vacant, or allow for repair costs when they arise.
Unlike listed stocks, if you need to sell a property it can take a few months to find a buyer and you have to include the costs of buying and selling the property when working out any capital gain or loss on the sale of the property.
If your self managed super funds buy a residential property, note that your family or other immediate relatives cannot rent this property from your super fund.
Can your self managed super funds borrow to buy the property?
You need a lot of money to invest directly in a residential property or a commercial property. Since 2007, self managed super funds have been allowed to use a limited form of loans known as Limited Resource Loan Arrangement (LRBA). Limited feature means that if your fund gets in trouble with repaying the loan, the bank or other type of lender can only claim the asset acquired with the LRBA instead of other fund assets as well. Visit: http://www.smsfselfmanagedsuperfund.com.au