How to Renovate Your SMSF Investment Property

How to Renovate Your SMSF Investment Property

So, you’ve invested in property through your SMSF and decided it needs some work. The question now is how to renovate your SMSF property? Is it as simple as calling a contractor and beginning work? Or are there certain rules attached to your SMSF investment property to consider before you pick up the phone?

 

Am I Permitted to Renovate My SMSF Property?

It depends. The legislation regarding renovations on an SMSF property dictates that should you have borrowed funds to make the purchase you will be restricted in regards to what you are allowed to do to it.

If your SMSF purchased the property outright, then how you proceed is at your discretion. As the trustee, you may renovate, sub-divide or develop the property as you see fit. 

 

What Are the Rules If I Borrowed to Buy?

 If you borrowed through your SMSF then renovating your SMSF investment property becomes a little more complicated. 

You may proceed only if:

  • The improvements are made using existing funds in the SMSF and not via additional borrowing.
  • The property is not so fundamentally changed that it represents a ‘replacement asset.’ 

 

What If My Property Needs Extensive Repairs? 

At what point do repairs become renovations? How is this determined? 

Repairs are considered anything that restores the original without changing its overall character. You may repair, replace or correct anything that has been broken or simply aged and become worn out. Damage from natural disasters or accidents is also considered repairs. While you may not borrow through your fund for renovations if the property isn’t owned outright, you are permitted to borrow for necessary repairs.  

Renovations or improvements that would breach the rules for mortgaged SMSF properties are deemed to be anything that alters the property’s purpose or function. For example, converting a residential property into a commercial one such as an office. This would count as a replacement asset, as would any changes to the title deed whereby a sub-division is carried out or strata terms created. 

 

Can I Do the Renovations Myself?

Regardless of whether you own the property or it is mortgaged through your SMSF, you are not permitted to carry out renovations yourself. 

 

Where to Seek Help

Feeling confused or overwhelmed by the rules? At Corbwood & Associates, our skilled financial advisors can support you in navigating the rules surrounding how to renovate your SMSF investment property. Our goal is to help you prepare for your retirement and make the most of your SMSF without the risk of breaching any of the relevant legislation. 

Don’t be put off investing or Buying Property with SMSF due to the complex rules involved. Let Corbwood & Associates guide you through. Contact us today on 07 5609 8874 to arrange a consultation to see how we can help secure your financial future.

Can You Buy Multiple Investment Properties With SMSF?

Can You Buy Multiple Investment Properties With SMSF?

If you’ve ventured into property investment via your SMSF and are ready to expand you may be wondering if you can buy multiple investment properties with your SMSF? The good news is that you can grow your property investment portfolio through your SMSF. 

 

Are There Limitations to How Many Properties You Can Buy Through Your SMSF?

The only real limitations are how much you have available to invest and whether or not you can gain finance approval should you need additional funding. You can buy multiple investment properties with your SMSF. 

You will also need to factor in your fund’s ability to meet the ongoing costs associated with each property to ensure that additional properties are not detrimental to your fund’s investment goals. 

 

Are the Investment Conditions the Same on Subsequent Properties?

Yes, the same rules apply to each property purchased. That is:

  • It must meet the ‘sole purpose test’ which stipulates that the investment must only benefit fund members.
  • It must not be purchased from anyone related to a fund member.
  • It may not be lived in by any of the fund members or any related parties.
  • It may not be rented out to a fund member or any related parties. 

‘Related parties’ is a broad term that covers several groups beyond just relatives and friends. Ensure you understand this regulation in full to avoid any issues with compliance. Failure to be compliant can result in fines and possible jail time. 

 

Financing Additional Investment Properties Via Your SMSF

Should you not have enough funds in your SMSF to cover the full purchase of additional properties you will need to enter into a new LRBA (limited recourse borrowing agreement) for each property you purchase. You can learn more about your borrowing options via our blog on this topic. 

Keep in mind that the same complexities will apply to each new LRBA application, and you may find it harder to get approval as your portfolio grows. To avoid this, it is recommended that you seek expert financial advice, to ensure your SMSF is managed properly and it keeps an adequate balance. 

With multiple loans and properties with ongoing expenses, you will want to ensure you have an expert handling your SMSF. This will keep you compliant and help to avoid any issues during audits. 

 

Can I Use My Super To Buy an Investment Property?

Unfortunately, no, this strategy is not permitted when expanding your SMSF property portfolio. While this is a commonplace avenue in normal property investment, the regulations and legislation set up to govern self-managed super funds stipulate that equity may not be used. 

If you prefer to use equity to grow a property investment portfolio, you will need to do this outside of your SMSF. 

 

Need Help?

At Corbwood & Associates, our specialist SMSF experts can guide you through every aspect of SMSF property investment. Contact us today on 07 5609 8874 to arrange a consultation to see how we can help secure your financial future.

Is SMSF Property Investment Worth It?

Is SMSF Property Investment Worth It?

If you’ve begun investigating SMSF investment options and you’re wondering ‘is SMSF property investment worth it?’, you’re not alone. SMSF property investment can be confusing and seem overwhelmingly complex at first but it can also reap great returns and help boost your retirement balance when done properly. 

 

Investment Options Through Your SMSF

When deciding on your SMSF investment strategy, you’ll note that there are a number of options available to you. In addition to property, you can invest your balance in:

  • Cash and term deposits
  • Shares, both Australian and International 
  • Stocks and bonds
  • Collectables, including cars, paintings, antiques, jewelry 
  • Fixed income products 
  • Physical commodities such as wheat, oil, natural gas 

 

Why Choose to Invest in Property as Part of Your SMSF Strategy 

With so many options to choose from you might be wondering why you would choose to invest in property or if SMSF property investment is worth it. Ultimately, it will come down to a few factors such as whether you have a large enough balance to invest in property. You will also need to determine whether it will help you meet the financial goals and needs of the fund members. 

Property is viewed as a long-term investment strategy and one that will require patience to see results but there are many benefits of investing in property through your SMSF. These include:

  • Growing your retirement savings faster: allows you to prepare for a more financially secure future. 
  • Providing a steady retirement income: once your SMSF property is owned in full via your fund the rental income provides you with an ongoing income.
  • Paying less capital gains tax should you sell: CGT is capped at 10% for SMSF investments or 0% if you have started a pension.
  • Creating cash flow for future investment: if your investment is positively geared the rent flowing into your super gives you an increased balance to put towards additional SMSF investments.  
  • Reduced tax on contributions: any interest accrued on an SMSF property loan (LRBA) is tax deductible. This can help to reduce your fund’s overall tax liability. 

 

Need Help? 

If you have decided that SMSF property investment is worth it but you feel a little lost in the details, Corbwood & Associates can help. Our expert financial advisors can help you create a winning investment strategy for your SMSF. We provide clear, easy to understand advice as well as offering ongoing management services and support to keep your fund on track. 

At Corbwood & Associates, we are passionate about helping our clients prepare for an enjoyable and financially secure retirement. Contact us today on 07 5609 8874 to arrange a consultation to see how we can help secure your financial future.

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. 

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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