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Yes, these are points well made.
However, a well drafted diy pack will include the advice, warnings and explanation about all the things you mention. I accept that this does not necessarily mean that the trustees/members of the fund will understand or accept this advice. Some will need a professional to tell them face to face about these things rather than to tell them in writing.
For my part, I have generally been impressed by the understanding of my clients over the legal structures involved and the various pitfalls. I have found my clients to have a strong desire to comply with superannuation law. If they have doubts about any matter they tend to ask my advice about it. I do believe that those who go the diy route are generally able to satisfy themselves from their own research and knowledge of the prudence of their plans.
I think however, there is some distinction to be made between setting up an smsf in the first place, and the smsf borrowing money to invest in property. The former is quite easy to justify. But as an investment, the latter is not always prudent, and I do emphasise to my clients that before they finalise any such transaction, they must make a good argued business case for the proposed investment in the investment strategy. And that this must be made in the light of the likely expenditure required upon the investment and its likely after tax returns bearing in mind the fund's existing and future resources, as well as its likely resources when it is called upon to pay benefits.
Creasy23 wrote:My partner and I are thinking of setting up a SMSF in order to purchase a property.is around $10K the average cost of setting up a SMSF? ($7K to set up and $3K for incidentals)
Hi Creasy
There are four routes you can take to set up your smsf. The first is by asking a professional to set it up for you, and Terryw is right, a lawyer will be involved at some point at least to supply the trust deeds – this is because to provide a trust deed is "engaging in a legal practice" {Legal Practice Board -v- Computer Accounting and Tax Pty Ltd [2007] WASC 184). A second way is to use a bank. A third way is to use one of the online services. These second and third options may leave you tied in some way to continuing arrangements or investment types or brokers. A fourth way is to do-it-yourself using one of the available online packs. These vary in price – an average price would be about $350 if you are using a corporate trustee (plus $444 fee to pay to ASIC), or $250 if you use individual trustees. There are no additional setup fees. In your case since the aim will be to purchase an investment property, setting up the smsf with a corporate trustee is advisable.
Quote:if we were looking to purchase a property for around $320K, I am thinking $90K be sufficient to just cover these costs? (set up, 20% deposit, stamp (NSW), closing costs etc) Are there any major expenses we are missing from this equation?Within your $90K you may be over budgeting for the cost of setting up the bare trust (otherwise known as custodian trust, holding trust or property trust) which is required in a case where an smsf borrows money in order to complete the purchase of property. Again you have the same options as before. Average cost of diy setup packs are $250 – this is on the assumption that the fund will be using a solicitor to carry out the actual conveyancing work.
Quote:If the property is positively geared, are you able to set up an offset account on a loan in a SMSF so that any rental income and future super contributions are able to sit against the mortgage?There is nothing in superannuation law which precludes this arrangement. So you can ask the bank whether it is available to your fund.
Quote:If over time that property is paid off by rental and additional super, are you able to sell this property and using this cash purchase a property of higher value? (we are both 30 so still have at least 30 years in the workplace)Yes you can, but you need to start again to set up a new bare trust arrangement to cover the new property.
I’ll pay the site a visit.
Thanks very much Michael, for giving us the benefit of your experience and knowledge.
You would be better buying completed but unoccupied apartmentsI suspect that these have remained unsold because the developer has reached the limit of 50% of sales which can be made to overseas purchasers. If so, they could only be sold to Australian permanent residents. The fact is that to UK/US/Singaporean purchasers Australian property is good value compared with what you can buy back home. However I suppose a serious US housing crash (which would probably have repercussions in the UK) and a glut of new-build might bring the premiums down.
