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Property investment inside an SMSF

I have about $350,000 in my super fund and my wife has around $120,000. Do I have enough to run a self-managed super fund myself or should I get my wife to join too. We would like to have less exposure to stocks — we hate them! — and so would like to, say, have two investment properties via borrowing or maybe by buying one straight out. Could we and should we do it? I earn around $100,000 a year and my wife earns about $60,000.

First of all, I think $350,000 is enough to justify having a self-managed super fund (SMSF). I usually advise, if you can keep your costs down to around $3,000, which is not hard to do, then you can justify an SMSF on cost terms. If your wife joins in, you would have $470,000 in your fund and if the cost was $3,000, your cost of running the fund, or marginal expense ratio, is $3,000 divided by $470,000, which equals 0.63%. This MER is less than most industry and retail super funds, and the more you put into it, the lower the cost becomes. Of course, how you run your fund has to be taken into account. On having properties in your super fund, I would suggest one would be okay, and if you were going to buy one without loans, then I would not spend more than $350,000 so you would still have $120,000, which I would have in cash and some really safe income-paying stocks. A person like you should not be afraid of stocks, and it could be unwise to have too much property. If you want to borrow to say, buy a property around $500,000, you could borrow $300,000 and put $200,000 down as a deposit. This would mean you would still have $170,000 in cash, some shares, and maybe term deposits or even some bonds. I like diversification and a bit of cash in your super fund to run the expenses of the fund, and for sensible liquidity purposes. As you can see, I think over-borrowing and going too long on property is a tad risky, but your property idea is still a good one. One last thing, good stocks in a well-created portfolio should return around 10% per annum over a 10-year period, but, three years could be really bad while another three could be really good and four might be just OK. If you select nice income-paying stocks, they will keep paying dividends each year just like an apartment will pay your rent. Rents don’t always rise — they can stand still for a long time and even in Oxford Street Paddington they can fall — big time!

Q&A: Can I access my super without retiring?

Published on: Monday, September 09, 2013

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