How to Create an SMSF Investment Strategy with Property

How to Create an SMSF Investment Strategy with Property

If you’re the trustee to a self-managed super fund (SMSF), you have likely spent time learning how to create an SMSF investment strategy. Working with your financial advisor to strategise your investments is the key to ensuring you have a diverse portfolio that offers optimal returns both now and into retirement. 

What Is an Investment Strategy with Property?

An SMSF investment strategy with property is a tailored financial plan that is created by the trustees of an SMSF, or your financial planner, taking into account the current and future financial needs of each member in the fund. It covers the use of the property as part of the investment portfolio and details the risk of the investment, its liquidity, and tax flow requirements as well as outlining the expected returns both in the short and long term. 

To create an effective SMSF property investment strategy in Australia you should follow these steps:

  • Know your legal requirements- It’s best to engage with a professional to support you through the process.
  • Understand the risks involved with investing in property and the potential for return trade-offs. 
  • Diversify your property investments: Just as your portfolio should be diversified, so should the property in which you invest. 
  • Ensure you have enough cash flow to keep the property maintained and your fund properly managed. For the property you’ll need to cover insurances, maintenance, taxes, and real estate fees. For your SMSF you need to factor in audit fees, bank fees, annual fees, and any pension payments required by fund members. 
  • Review and research potential property investments carefully before purchasing and ensure they represent a good opportunity for growth to support your financial future. 
  • Seek professional advice from a qualified financial advisor or company to ensure your strategy meets the legal requirements and represents an intelligent move for your portfolio. 

The Legal Requirements When Investing Through Your SMSF

Investing in residential property in Australia through your SMSF is not as simple as just outlining your goals and hopes for investment performance. There are strict regulations and laws surrounding your investment strategy creation through SMSF.  

As the trustee of an SMSF, you are legally required to review your investment strategy (with or without property involved) on a regular basis. This review needs to ascertain whether your initial goals and their possible outcomes remain both relevant and achievable. This assessment needs to consider the needs and expectations of all fund members. 

How Corbwood & Associates Can Help

At Corbwood & Associates we’re able to advise on, and connect you with the right professionals with all things related to SMSF investing and wealth creation. We work alongside you and teach you how to create an SMSF investment strategy that helps you prepare for a financially secure retirement for you and your family. 

Understanding the ins and outs of how to create an SMSF investment strategy is something we have years of experience with. Engaging one of the qualified financial advisors in our network reduces your stress and enhances the likelihood of creating a winning high-performing property investment. 

Contact Corbwood & Associates today on 07 5609 8874 and learn how to create a winning SMSF investment strategy.

5 Things To Consider When Buying An Investment Property

5 Things To Consider When Buying An Investment Property

Once you’ve found your investment property, and you’re at the pointy end of the process, it’s time to get into all of the nitty-gritty details that will allow you to not only purchase the property but enjoy a long-term profit from it.

At Corbwood & Associates, our role is to connect you with the right services throughout our network – such as financial advisors, legal services, and more – to ensure purchasing your investment property is a smooth process. That’s why we’ve put together this list of the top 5 things to consider when purchasing an investment property.

So What Do I Need To Know About Buying An Investment Property?

Cash Flow

Firstly, it’s important to understand the cash flow position of the property. Often you will hear terms being bounced around the industry, such as cash flow negative, cash flow positive, negative gearing, and so on. All of these terms relate to how many dollars will come in from the property you purchase, versus how many dollars will go out.

Typically, in standard property investing, we would have two incomes from your property:

1: the rent that it generates from the tenant
2: the depreciation or the tax rebates that you receive from owning an investment property.

However, when purchasing a property through a self managed superannuation fund, you must consider having a third potential income:

3: the superannuation contribution guarantees that are provided by your employer.

Nowadays, the concept of negative gearing, (i.e.having your property lose money so that it can offer you tax efficiencies), is a strategy that has long passed its best. In reality, with interest rates being at a global historical low, combined with Australia having a significant housing shortage for its growing population, there is a continued increase in demand.

We have seen that the average rental yield in the country now is far surpassing 4%, which is significantly higher than the average investment property loan, which is between just 2% to 2.5%.

Now, you should be targeting properties that are cash flow positive, i.e. bringing in more rent than the outgoings (such as council and water rates, building insurance, letting fees and upkeep fees and of course the loan itself). With that being the case, you need to understand a cash flow-positive property creates income. Income holds the tax liability to make sure you don’t spend all of the rent that you receive before understanding what portion of that needs to go to the ATO at the end of the financial year.

Insurances

Something else to be mindful of is the necessary insurances associated with the property. Many properties such as townhouses or units can often have a strata title or a body corporate insurance policy. That can come with a range of different benefits or complications depending on its structure setup or format. Understanding these are vital.

Other insurance components that would need to be considered are whether the property has overlays, fire, flood or environmental impact. These things can often affect the amount that you are going to pay each year in insurances.

Capital Growth

The third thing to consider is the capital growth of that property – that is, what potential does the property have to increase in value, meaning upon reselling it you will be able to profit from the decision you made to invest in the property in the first place. Things that drive capital growth can be proximity to amenities such as public transport, shopping centres, schools, highways, hospitals, but it can also be microeconomic factors, such as occupancy and vacancy rates, the average income in an area and the balance between owner-occupied and tenanted properties in that specific suburb.

Mortgage

Number four, you need to consider which lender you want to work with and which mortgage structure is going to be most appropriate. There are thousands of different banks and institutions nationally and globally with which you can borrow funds so that you can go on and purchase an investment property. But many of them have a wide range of interest rates, fees, terms, clauses and flexibility, meaning that not all of them are going to be right for you. Like a good news story, don’t just read the headline (i.e. the interest rate), instead read the whole story, it will give you a clearer picture of the upside that you would receive from that loan structure. Keep in mind that offset accounts are an extremely powerful way to be able to accelerate mortgage reduction. But also remember that traditionally we would never want to own more than 20% of an investment property until you own 100% of your own home. The interests paid on an investment property is tax-deductible, interest paid on your own home is not.

Logic Over Emotion

When considering an investment property, you need to remove all of your emotions and make this a purely logical, mathematical and economic decision. It does not matter whether your family prefers a two, three or four-bedroom home. It is not relevant if you do not wish to travel more than 15 minutes to work. What is important is to take a broader look at the market in its entirety. What is the most highly demanded property type, in which area, at which structure, for example, a townhouse, unit, housing & land or acreage? Instead of trying to analyse and understand the market as just one human being, use really good resources. Sites such as Core Logic RP Data, realestate.com.au and National Bureau of Statistics or Property Investor Magazine help you dive deeper into what the experts and professionals are suggesting is going to be the area that you have the greatest probability of sustained rental income and probably capital growth over the medium to long term.

Lastly, engaging  Gold Coast property investment Advisory company, such as Corbwood & Associates, will allow you to ensure you are making the right choice. Contact us today for peace of mind.

To understand more about this process, ask questions about your personal circumstance or simply to find out if you qualify to do this, contact us today. 

Navigating the rules and regulations of buying a property through self-managed superannuation

Navigating the rules and regulations of buying a property through self-managed superannuation

 Having a self-managed superannuation fund (SMSF) has become a popular decision over the last few years. Seemingly the on trend decision for everyday Aussies aiming to take greater control of their financial future. Whilst the positive results of taking such a step are evident, one thing that we strongly encourage is to research all of the ins and outs, before deciding whether an SMSF is right for you. 

It is essential to understand every single one of the rules, regulations and obligations of a self-managed superannuation fund – especially when set up with the intent with which to be able to borrow money and ultimately purchase an investment property.

During this short article, we will look to break down just a handful of the major restrictions you will face when purchasing a property with your super, which we hope will help you to navigate the property market and understand the very small portion of properties that are suitable to be purchased through a self-managed Superfund, against the vast majority that you will see on realestate.com.au, which unfortunately are not able to be purchased due to very specific lending criteria laid out by the small numbers of banks that will offer loans in the space.

A finished build, purchased under a single contract

Firstly, one major thing to note when purchasing a property through your self-managed superannuation fund is that the property must be completed. It cannot be off the plan or under construction. You cannot purchase what is known as a “two-part” contract for house and land – you must instead purchase a single contract, with both the house and the land considered in the same sale.

Location + Demand 

The property must be in a high rental demand area, typically summarised as a 50-kilometre radius from an Australian Capital City or a 35-kilometre radius from Australia’s Major’ city, usually those having a population of over 100,000 people or greater, of which there are roughly 17 cities available in the 8 States/Territories of Australia. The cities that fall within those areas, with a vacancy rate of below 1%, usually show us the rental demand statistics that we are seeking to encourage our investors to consider purchasing in that area. 

The bank has to like it, too

If looking to borrow money through your SMSF to assist in purchasing your property, the bank has some say in it, too. They would prefer the property to be as new as possible as these properties generally have the lowest ongoing maintenance costs and are typically still held under a builder’s warranty for major structural components. They have a higher rental demand, they have greater tax depreciation benefits, as well as, the most probable increased resale value. 

Purchasing a newly completed property with high-quality construction, within an area of high demand, will provide an investment opportunity that not only has high tenancy rates, but also a low probability of continuous costs to you as the owner.

Positively geared 

The property must be at least cash flow neutral, but ideally, cash flow positive, meaning that the rent per week is more than every single one of the outgoings to the property. This is easiest summarised by seeking a property that has a 4.8% rental yield or greater. This means that you must receive a minimum of 4.8% of the amount you purchased the property for in rent each year.

This statistic alone makes it very difficult to be able to choose an investment property in cities like Sydney and Melbourne, where the average rental yield is below 3%. However, places like the Sunshine Coast, Brisbane, Gold Coast, Newcastle, Adelaide and Hobart are just a few examples of cities which offer an abundance of opportunities that meet this criteria. 

No personal gain

The final thing to consider is that you must have no personal gain from the property, meaning that you can never live in it nor can never have it rented/tenanted by anybody that you are knowingly aware of. You can never complete any building maintenance or repair work yourself; it must be done through a licenced third-party tradesperson. You cannot rent the property out for yourself; this must be done through a licenced third-party agency and

lastly, you cannot develop or improve the property. You can restore it and maintain it to its original state, but you cannot subdivide, build a second storey, create a granny flat, turn it into units, so on and so forth. 

These regulations are what make finding a property to purchase through your self-managed super, both the most exciting, but most usually the most frustrating part of the process. The reason Corbwood & Associates has grown so quickly and been fortunate enough to help 1000s of Australian families is that we have a system that separates those that you can consider purchasing from those that you can’t, making it a little easier to decide on exactly which dwelling is the right one for you if this is a path you ever decide to explore.

To understand more about buying property through self-managed superannuation ask questions about your personal circumstance or simply to find out if you qualify to do this, contact us on 1800 OUR SMSF (687 7673).

Related Tag: Using Super to Buy a House Australia

What happened to the property crash everyone spoke about?

What happened to the property crash everyone spoke about?

The old saying is don’t let the truth get in the way of a good story. I guess that is the generation we are a part of. A high speed, 24/7 connected, instant gratification and highly media-driven society, which often causes news to travel fast, allowing for public opinions to be formed quickly and inherently with a minimal amount of factual information needed. As long as there are more people who think it did or is, than know it didn’t or isn’t, then that by default becomes the ‘new common truth’. How many times have you been told ‘the economy has crashed’ in your lifetime? How many recessions have you lived through or even worse how many times have you had to hear someone blame the GFC?

Housing Numbers

Well, here at Corbwood we have learned that men lie and women lie but numbers don’t. If you had been heavily invested in 2007 before the GFC in property or shares and you were sensible enough not to sell your investments in the downturn but instead still owned them today, would you be happy with your 13-year returns?

Average Sydney Property Price 2007 = $512,300

Average Sydney Property Price 2020 = $873,000

Growth = 70.4%

Average Growth Per Year = 5.42% 

It feels like 1990 all over again, we were in the middle of the last recession that this country had been through, interest rates were alarmingly high as opposed to 2020 where they were at record all-time lows. We are being told by every media channel that the bubble has burst, and Australian property prices were about to crash. At that time, in 1990, there were some fantastic news reporters talking about people in the Western Suburbs of Sydney setting their houses on fire to stay warm because it was not worth the timber that it was made out of. The property prices at that time in 1990 in Sydney were at an average of $140,000 per property. Now I question you to speak to anybody who invested in a property in the middle of the recession of 1990 in Sydney that still owns that property today that is disappointed with the investment that they made. Who regulates the information that Channel 7, 9 or 10 share with us during the news hour? Mass media often cause us to have fear. Fear leads to procrastination and procrastination causes people to miss opportunities. 

The important part of this small article is to get people into the mindset and understanding that Investing Super in Property is a long term investment, it will have boom and bust cycles, it will have hyper-growth years as well as having years of stagnation, whereby it grows very little and potentially even declines by a few percent in that short term period. But looking through history, there has never been a circumstance where the average property price in this country has declined over a medium or long term period of seven years or greater. 

So just like this year in 2020, everybody has now become ultimate property enthusiasts as we saw a huge growth year with a renewed demand in the property market that was continued to be stimulated by the government incentives that were being offered. First home builders in most states receiving $15,000 or greater in the form of a grant and a further $25,000 under the COVID-19 stimulus package offering a ‘new home builders grant’, allowing first homeowners to enter the $400-500,000 property market with less than $10k cash, which many of them had just removed from their super, which is a big ASIC nightmare the country will be dealing with in 9-12 months time, keep eyes and ears posted for another article from me on that in the near future.

Fun Facts

Cities and pockets of cities in Perth, Hobart, South East Queensland and in Darwin had over 10% growth in a single year, something that hasn’t been seen since pre GFC times. But many people will say now’s not the right time to buy because the markets are too hot. Well, they were telling you in April last year that it wasn’t the right time to buy because we were about to face global depression. And we were going to see unemployment statistics the highest they had been since 1929. 

So as I said at the start, sometimes they don’t want to let the truth get in the way of a good story. And the truth is the best time to buy an investment property will always be yesterday. Seek independent news channels to get a ‘balanced view’ on the current timing of the market and hope we are positioned as a nation-leading into the future, always do your research and try to let the facts outweigh the feelings.

For more information on property investment, contact us today!

Jack Corbett

Managing Director – Corbwood & Associates

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Reasons For Property Investing In Australia

Reasons For Property Investing In Australia

Ever thought about property investing in Australia? Property is considered to be one of the soundest investments you can make. According to the Australian Tax Office (ATO) in the 2017-2018 tax year, over 20% of Australians owned an investment property. Over 30% of that group were of retirement age. Property investment can be the key to securing your financial future into retirement.  

If you have considered property investing in Australia but don’t know where to begin, the experts at Corbwood & Associates can help. 

5 Reasons To Invest In Property 

Property has always been favoured by investors and there are many reasons why: 

  • Property is less volatile than shares.
  • Investment properties can generate rental income. 
  • Investments in property can be used to offset your tax. 
  • Property Investment in Australia doesn’t require any specialist knowledge, unlike shares. 
  • It’s a simple, physical asset that you can see and touch that makes gains with little to no input.  

Building a portfolio of investment properties is one way many Australians prepare for their retirement and gain financial independence. Keep in mind, however, that property investing is a long-term strategy for building wealth and requires patience.  

Things To Keep In Mind When Considering Property Investment In Australia

While you don’t need any specialist knowledge to own property, it’s a good idea to seek our professional advice prior to making a purchase. This can help you avoid any possible pitfalls such as non-competitive loans or spending more than you should.

Without careful assessment of your current financial situation and future financial goals, an investment property could create unforeseen issues. With all real estate investing in Australia, the risks and downsides are:

  • That the rent doesn’t cover the costs involved in repaying any mortgage taken out or upkeep of the property. 
  •  A rise in interest rates will mean higher repayments.
  • Should your property be unexpectedly vacant, you will not have rental income to cover the costs.
  • Property is not always easy to offload and liquidate should you need access to funds. 
  • If the property market does not grow as expected, you could end up owing more than your property is worth. 
  • There are higher costs to enter and exit than when investing in shares. Stamp duty, legal fees and agency fees can create significant expenses. 

Invest Intelligently

Should you wish to pursue property investing in  Gold Coast, Sunshine Coast, Brisbane & around Australia, it is imperative that you do your research.  For the uninitiated, investing can feel overwhelmingly complex. At Corbwood & Associates, we can help you navigate the investment process and ensure it is an investment that serves you well financially, both now and into the future. 

Whether it is your first investment, an investment you want to make through your SMSF or something you have done before, our team can help.  We adopt a holistic, strategic approach to wealth creation so you can approach retirement stress-free. 

Invest in your financial future, contact our expert team today on 07 5609 7670.

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Self Managed Super Funds Loans And Lending Options

Self Managed Super Funds Loans And Lending Options

Understanding the different lending options for buying a property with super fund can be difficult and incredibly complex, especially if you intend on using your fund balance as the deposit. That doesn’t mean it can’t be done;  you just need to get the right advice and access the finance option that’s right for you. 

To help you navigate the pitfalls, we recommend engaging the help of the professionals at Corbwood & Associates. We can walk you through the process of residential and commercial investing through your SMSF. 

Can I Buy Property Through Any Super Fund?

First things first, you need to ensure your super fund allows you to invest in property. Currently, only self-managed super funds can be used to invest in property. 

The primary purpose of any superannuation fund is to grow your contributions through investments. 

The idea behind an SMSF is that you have control over how those funds are invested.  Rather than invest in stocks or bonds, you can choose to invest in residential or commercial property. 

Self Managed Super Fund Property Loan

You are not required to have the full value of the property when buying an SMSF investment property. There are lending options for buying a property with your super whereby you can apply for finance for the residual balance. However, most lenders will require your SMSF to have at least 30 percent of the value of the property as a deposit. 

These types of loans are known as limited recourse borrowing arrangements (LRBA) and are incredibly complex to set up with strict rules applied. This is where highly experienced financial services provider Corbwood and Associates can help. 

LRBA loans are designed to limit the actions of the lender should the repayments on the loan not be met. In short, an LRBA protects your other assets linked to your SMSF from being seized. To achieve this, a separate trust and trustee, known as a custodian, is set up.

Which Lenders Offer LRBA Loans?

Due to the small profit margins and complications involved with LRBA loans, not all banks or lenders offer them. Those that do often levy high-interest rates, and the market is constantly shifting with regards to who will offer these loans. 

Engaging the help of Corbwood and Associates means your lending options for buying a property with your super are carefully scrutinised and chosen competitively.  

Corbwood & Associates, We Streamline Investing With Super

Avoid unnecessary stress and delays in investing – trust us to secure your SMSF investment finance at a competitive rate. Keeping you compliant and your financial future secure is our speciality. 

At Corbwood and Associates, our team is made up of fully qualified and licensed professionals who understand your needs. 

We are passionate about providing quality advisory services for:

  • Property investment via self-managed super funds.
  • Refinancing and first time home loans.
  • Property investment advice and wealth creation strategies.   

Contact us to arrange a consultation and learn how we can help secure your financial future.

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