SMSF Property
SMSF Investment Property
SMSF Investment Property : The University of Adelaide Research into SMSF using the largest data base of SMSF’s in Australia (after the ATO’s) headed up by Dr George Mihaylov – Senior Lecturer at The University of Adelaide; for the purposes of educating Australians in the SMSF space.
Meaning their findings are both Robust and Reliable and reflective of the entire population of SMSF’s Australia wide representing a substantial chunk of SMSF monies out there. This is important to know when giving setting up a SMSF the due diligence it deserves by you.
Adelaide University in their research go to great lengths to ensure that the way they capture performance for SMSF’s mimics as closely as possible what APRA does for APRA funds when analysing them using actual financial statements (not reported returns). Further legitimising the accuracy of their findings.
Their research has been over the past 6 Financial Years and their most recent research demonstrates that the SMSF’s outperform APRA funds by around 1.5% up to just over 4 percentage points, at the median performance level.
Comparing APRA Funds to SMSF Performance
In general, SMSF’s tend to perform better when the market is contracting whereas APRA funds tend to perform better in growth market periods. Attributed to ‘asset allocation’. Primary difference is APRA funds tend to invest in International Funds in expansionary markets, whereas SMSF’s tend not to or if they do, they invest in far smaller amounts into these funds.
Results are highly conditional on which APRA fund(s) you invest in and or which SMSF asset classes you invest in. The research uses the Median of these funds, when comparing both. Meaning you can outperform or under-perform in both, depending on what you elect as your investment vehicle.
SMSF’s tend to hold overweight positions in Cash Deposits where as APRA funds do not. APRA funds tend to have a lot less variation in their funds whereas SMSF funds tend to have that variation, given the wide choice and self-control they have over their own SMSF’s and not reliant on Fund Managers dictating ‘choice’.
Why share this with you?
It is patently obvious that taking control of your own Super’s financial destiny the advantages include:
- Wider choice of asset class
- Control of what you elect to invest in
- Ability to Leverage into your Investment Vehicle
Using LRBA (debt) to invest in an Investment Grade investment property allows you to take advantage of the 8th wonder of the world, being Leverage. Using ‘good debt’ / the banks money to secure an asset at a fraction of that assets market value. This gives your SMSF the ability to maximise its investment potential into that asset class.
The results, when done astutely are potentially financially substantial. See generalised example below for demonstration purposes only. Numbers will vary according to market conditions and property invested into.
EXAMPLE for returns on your SMSF Property Investment
**By way of example only, we have taken the following numbers into account for an investment property in ones SMSF for demonstration purposes only.
SMSF Investment Property :
- Residential Property Value $850k
- Potential Yield $51,000
- 6%
- 20% deposit
- $170k
- P&I 7.5%
- Including outgoings
Results at 10year mark could be :
- $805,793 Equity
- Negative Cash flow -$148,538
- Tax Saved $34,980
- Rate of Return 11.76%
Net Position could be $657,225 (Includes :- Deposit Invested + Income from Rent + Depreciation Benefits + Capital Growth minus outgoings)
Remember : your initial investment is the 20% deposit of $170k
*Yield = $170000/$657,225 = 26% ROI
How to invest in a SMSF Property with Borrowings
Single Contract SMSF investment property
There are new ways to secure SMSF suited House and Land type projects (two part contracts) using borrowings in your SMSF, and at far lower fees than previously available to SMSF investors. Ask us how here?
You now have a far wider of choice of Location and Property Type with higher ability to match the ‘best fit’ investment vehicle (property) to suit your investment strategy, purpose for the investment and also as important your budget for the investment. It continues to astound us, how over the past 18 years experience we have had in this exciting industry how many investors still squeeze the ‘wrong’ property into their budget … driven by emotion; when the financial results could have been improved matching the investment vehicle to their goals, purpose and budget for the investment.
