Self Managed Super Funds and What You Need to Know!
Self Managed Superannuation Funds (SMSF) are a form of financial Trust, with the sole purpose of providing income in retirement for members, or as a death benefit. A fund is set up with its own Tax File Number (TFN), Australian Business Number (ABN) and bank account. There is no minimum required amount to start a Self Managed Superannuation Fund, however, a large initial investment is generally nominated, $200,000 is often suggested as a guide.
While the average fund balance is just over $1 million, 70% of SMSFs have less than $100,000 in taxable income. The typical cost to set up a Self Managed Superannuation Fund is around 3.26% and preparing all documentation and details will take approximately 4 weeks.
What is the role of an SMSF when it comes to investment opportunities?
One of the main reasons people set up an SMSF is to have greater control over their future and of their investment strategies. SMSF provide the flexibility to make investment decisions, and the option to buy them directly.
An SMSF can borrow funds to purchase an investment property assuming the relevant loan criteria can be met. Direct property investment is often seen as a way to outperform retail or industry funds.
What does SMSF invest in?
Of the approx. 600,000 Australians with an SMSF, figures put out by the ATO on March 2018 show only 12% invest in non-residential property. This is certainly seen by experts as a missed opportunity. Although figures from the Australian Tax Office show investment in commercial property has increased 47% in the five years from 2012 to 2017. Those who are investing are seeing solid returns.
It is important to note you cannot buy a residential property through your SMSF and then make it your primary residence nor have a family member rent it. You can, however, purchase a commercial property and then conduct operations from that premise whilst paying rent via a Leaseback into your Super fund. This is one of the major benefits of an SMSF for business owners who benefit from the capital investment whilst save having to pay rent to a third party landlord.
Why choose commercial property over residential for your SMSF?
Figures show investing in a commercial property typically yields higher cash flow than residential property. The average return on residential property in the major capital cities of Australia is 2%. Commercial property on average yields 6% to 6.5%.
Residential tenants often turn over every 12 months and with that comes vacancy risk and reletting costs. Commercial tenants, on average stay between 3 and 10 years. They often tailor the space to their working needs so are less likely to leave in the short term.
Residential properties attract Council & Water Rates as well as Body Corporate costs for strata, which are borne by the owner. Commercial tenants typically pay most, sometimes all, the outgoings under a commercial lease.
The GormanKelly Experience
Many of GormanKelly clients are SMSF investors. We are committed to enhancing your asset and delivering you security, longevity and peace of mind. Contact us to discuss our impeccable property management service today.
This communication is produced for your general information and awareness purposes only. GormanKelly takes no responsibility nor liability for the accuracy of the contents herein. The contents of this email do not constitute legal nor financial advice, are not intended to be a substitute for legal nor financial advice and should not be relied upon as such.
Written by Aldo Galante
For over 30 years, Aldo has been at the forefront of Australia’s fast-evolving property industry. He served as President of the prestigious Australian Property Institute (Vic), providing determinations on rent-reviews and valuations