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There is no such thing as a standard fund. The question is not how much you have in super but what you plan to have in the future, and what the costs of managing this are. Generally people try to have $150,000 or more because some accountants charge $5000 or more per year. Clearly if the ongoing management would cost $1000 then the starting capital could be less also.
Real estate is generally a fantastic asset as it performs differently to shares or other asset classes.
In the past buying direct residential property inside of super has been out of reach for most Australians due mainly to the costs associated and the high entry level to buy just an average Australian property. To buy just one residential investment property in most states in Australia you are going to be up for costs of well over $400,000. Therefore, in the past you have had to have at least $400,000 inside of your super fund to buy just one property, let alone all of the transactions associated costs such as stamp duty.
Thankfully these rules have now been changed.
In 2007 the Superannuation rules were changed to allow you to borrow money inside of a SMSF to purchase both residential and commercial property.
Now that you can borrow money through a Self Managed Superannuation Fund (SMSF) to buy residential investment properties, it puts SMSF's in a league of their own.
For residential investment property banks are willing to lend up to 80% of the value of the property. For commercial property the banks are willing to lend up to 70%.
So, if you are looking to buy a $400,000 residential investment property using your SMSF, the bank will lend your SMSF up to $320,000 to help fund the purchase. All that you require in your SMSF is the $80,000 difference plus the funds required to cover any transaction costs and ongoing fees.
Most banks will have special arrangements in place for SMSF trustees wanting to borrow to buy an investment property. The process to gain approval for a SMSF investment property loan is very different to obtaining a property loan in your own name as any borrowing arrangements inside of super will need to comply with the SIS Act.
To meet these borrowing rules, unlike buying a property in your individual name, a SMSF can only borrow to invest in direct property through a special structure called a Bare Trust (also known as a Property Trust or Custodian Trust). Although the legal title will rest with the Bare Trust, the SMSF maintains the beneficial ownership of the property, meaning the SMSF will receive all of the rental income and capital gains made by the investment property. The purpose of this arrangement is so that the lender can take charge of the property if the SMSF fails to meet the interest obligations and pay off the loan.
Keep in mind though, leverage when borrowing to buy a direct property inside of super is considered a double edged sword. While gains are potentially magnified so too are losses. For certain types of properties, in many areas it is common to see short term declines of 20% in price. If you are forced to sell a property in a depressed market and you borrowed 80% to fund the purchase of the property using your SMSF, a 20% fall means that you have lost your entire investment (100% of your super funds contribution). So you can lose everything. It is for this reason all investors should ensure they are safe guard themselves from being forced to sell at anytime and should consider Life, Trauma, and TPD insurance to ensure adequate personal insurance cover to prevent being forced to sell a property.
There are many additional rules and restriction when buying property with superannuation. It is critical you understand these restrictions and seek professional assistance. The cost of making a mistake attempting to go it alone can be very high.
I am very cautious about commercial property as the decline in China, slowdown in economy here in Oz as a result may bring lower yields as a result. More here http://inkom.com.au/blog/should-you-dump-china-stocks
Best advice is HOLD OFF and do NOTHING. The market will drop in the next 3 months as China assets dropped 28% last month and the sentiment will come here on the back of Asian investors. Traditionally Dec-Jan are the most expesive months to buy seasonally so I’d wait till Feb at least. That’s sound advice, not a sales pitch that you are used to hear. Here is a FREE book that I’ve written on what you can do: (big PDF, slow download)
http://inkom.com.au/sites/default/files/howtobuyadreamhome-110315234441-phpapp02.pdf
After you decide on the timing you then decide on the ownership structure, best being a JV between your Family Trust (corporate Trustee) and a SMSF (corporate Trustee #2) and a bare Trust with an SMSF for gearing. MUST have a company as a layer as in the last QLD Supreme court they fined a land-owner for tennant’s accident, and without a corp trustee your overall assets are at risk…..in QLD case they were sued for $8m. Then you can structure a very effective NIL tax environment. Good luck
