Hi all,
I currently have two IP,s in my own name all holding costs are in the positive territory, including some managed funds etc.
I seeking information on whether I should set up a DFTrust or a Unit trust to keep investing in my name only and thus spread land tax etc. Current rents are ringing in 41k pa, and rental returns of over 6%pa
One of the above properties was my PPOR and i may well move back into the property in the middle of the year, but it is not a done deal etc, all depends on work etc, either way once valuations are completed in the new year I will see where I sit with LVR,s currently at the 80% mark.
Or alternatively set up a SMSF and invest via property within the fund, current super amount is sitting at 116k mark, my current understanding is that I can possibly purchase 2 properties within the fund, with rents and employer contributions it almost makes it worthwhile, employer contributions per month are sitting around the 15k pa, and given my location in regional SA i can purchase house and land properties for $350k and get $380 pw week rent, so servicablity may not be a real issue.
Given my age of 41 properties in a SMSF will not be accessible for another 15 years etc if I undertook a transition to retirement etc, but CG will not be as applicable within the fund etc.
I would like to continue with purchasing of properties but with LVR,s getting to a stretch with investing in my own name, I would appreciate it if there are any suggestions on the best approach given my current situation and the ever changing SMSF rules.
PS i have a wife( say at home) and 3 dependants but i would like to retire at 55 etc.
Look forward to your advice
Hi There,
It pays to sit down and explore these items in more detail but here are some general comments:
1. Re setting up a trust – there is 2 components accounting/tax and finance. You need to speak to an accountant about the pros and cons of not only a trust vs investing under an individual entity but also the difference between the trusts, i.e. Family, Unit Trust, etc. They need to go through the asset protection and income distribution details. Also get them to go through the cost structure with you.
From a finance perspective there is not too much to worry about if the trust is a unit or family trust however you will find quite harsh restrictions when it comes to a hybrid trusts.
2. If you have a buy and hold strategy SMSF is a great option and 41 is a good age. Having said that SMSF is different to traditional property purchases. They are fine but you just need to understand that they work and cost differently. Again have a good accountant and broker/banker explain not only the benefits but also the restrictions. Get a good and experienced one as you will pay for it later on.
Also note the max personal contributions you can make to the SMSF per year.
3. Diversify. I am a passionate property investor however even I don't put all my cash in property. You mentioned you have managed funds which is great but just be wary of putting everything in property.
Sorry for the long post and good luck.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I agree with Shahin on several points: diversify, long term strategy etc. If you do purchase inside your smsf you cannot live in the property but it may allow you to consider selling your other properties to diversify.
Thanks Shahin,
I agree diversification is the key, thanks for your advice.
I have a strong holding of shares and in both my managed funds and super account, so I feel as though i am covered here.
My underlying question is whether its better to accumulate real estate outside of superannuation, i suspect its easier to accumulate outside of super?
Regards
Scott,
Are you able to clarify?
Selling my other IP,s to then invest in a SMSF?
See a lawyer regarding Asset Protection, accountants are not able to provide legal advice like that.
I like using various trust structures for property investment. I think you would benefit from looking at not just the structure for this investment but your overall structure.
Utilising a trust structure that then lends money to your property investment vehicles via a secured second mortgage makes a good start. Normally have to worry about the rule of perpetuities, but being SA based changes that.
regards
Darryl
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
Email Me | Phone MeProperty Lawyer & Town Planner
Just to be clear… you can have some properties inside super and some outside, all at the same time. Similarly, nothing wrong with having some non-property investments both inside and outside super, at the same time. Your SMSF could have some property and also some other investments if you want.
Ask lots of a opinions from lots of people. Pick and chose the ideas you like, and remember just because a particularly strategy worked for one person, doesn't mean it is appropriate to you who might have a different life circumstance or strategy.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Is it better to accumulate properties within SMSF or outside? You need to ascertain a list of the benefits and put this against the restrictions/disadvantages. You have already noted a benefit but here are some more:
1. You can use your Super money as a Deposit instead existing cash (or lack of)
2. Tax benefits. The maximum rate you pay on the rental income is 15% and once you are in your pension stage then this is 0%.
3. CG benefits which you have already highlighted which is that you will not be taxed on the CG within the retirement stage.
Some of the restrictions or cons include:
1. Higher set up costs of approximately $2k-3k
2. Higher interest rate than 'normal' loans
3. You can renovate an SMSF property but cannot borrow funds to renovate it
4. SMSF entities are sophisticated investment vehicles so you need to ensure everything is done properly and by the book (such as the yearly audits) otherwise you will be whacked with penalties.
This is why I was saying that it works well at your age particularly if you have a buy and hold strategy as opposed to a buy and flip strategy.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I am slightly biased and whilst i have a lot of my properties outside Super am a big fan of SMSF and think they are a great vehicle for Asset accumulation.
With the amount you have i can't see why you can do both.
Also remember if you decide to sell a property inside your SMSF prior to retirement and have held the property for more than 365 days then CGT is only 10%.
There are a dozen or so lenders that play in the SMSF residential space however only a few that are really competitive and really seem to want the business with sensible serviceability models and set up costs.
Whilst you appear to have a good understanding of Superannuation shoot me an email if you would like a copy of my SMSF Ebook.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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