Property Options

SMSF Property Investment Options

Choosing the Right Property for Your SMSF Strategy

Investing in property through a Self-Managed Super Fund (SMSF) can provide eligible investors with greater control over the type of property held within their superannuation.

But the important question isn’t simply:

“Can my SMSF buy property?”

The more important question is:

“What type of property, if any, is appropriate for my SMSF investment strategy and retirement objectives?”

At properT network, we believe that property selection should come after the investment strategy has been established — not before.

We help SMSF investors understand the property investment side of the equation and identify a selection of property that may be appropriate for their objectives, budget, investment strategy and circumstances.

Not Every Property Is Suitable for an SMSF

One of the biggest mistakes an investor can make is assuming that any property can be a suitable SMSF investment.

It can’t.

The property needs to fit within the SMSF’s investment strategy and comply with the superannuation rules.

The investment strategy should consider factors including:

  • investment objectives
  • expected risk and return
  • diversification
  • liquidity
  • the fund’s ability to meet expenses and future member benefits
  • the circumstances and retirement objectives of the members
  • investment budget.

The Australian Taxation Office requires SMSF trustees to have and follow an investment strategy that reflects the circumstances of the fund and its members.

This is why we believe property selection should be strategy-led rather than property-led.

What Property Options Can an SMSF Consider?

Depending on the SMSF’s investment strategy and circumstances, there are a range of property types that may be considered.

House & Land

A house and land package can provide exposure to residential property in a growth corridor or established market.

When assessing this type of investment, we look beyond the house itself and consider factors such as:

  • underlying land value
  • location
  • supply and demand
  • infrastructure
  • employment and population growth
  • rental demand
  • quality of the dwelling
  • future resale appeal.

The objective is not simply to find a house.

It is to determine whether the property represents an investment-grade opportunity.

Townhouses & Townhomes

Townhouses can provide an alternative to traditional detached housing.

They may appeal to tenants seeking additional space and amenities without the price point of a larger detached property.

However, the quality and location of the development matter.

We consider:

  • the number of properties competing for tenants
  • land component
  • location
  • development quality
  • body corporate considerations
  • rental demand
  • future supply
  • resale market.

Terrace & Duplex Homes

Terraces and duplex-style properties can provide another residential investment option.

Their suitability will depend on the individual property, location, ownership structure, land component and the SMSF’s investment strategy.

There is no universal property type that is right for every SMSF.

Dual Key Property

Dual key properties can provide two distinct living areas within one property.

For some investors, this structure can provide an alternative rental profile compared with a conventional single dwelling.

However, the important question remains whether the particular property provides a sound long-term investment proposition.

We assess the underlying property, location, tenant demand, construction quality, rental market and future resale considerations rather than relying solely on the advertised rental return.

Units & Apartments

Apartments can provide access to locations where detached housing may be less affordable.

However, SMSF investors need to look carefully at:

  • land component
  • body corporate costs
  • development size
  • future competing supply
  • rental demand
  • owner-occupier appeal
  • construction quality
  • location
  • resale liquidity.

A lower purchase price does not automatically make a property a better investment.

Higher-Income Property

Some SMSF investors may place greater importance on rental income and cash flow, particularly where the SMSF needs to meet ongoing expenses or is approaching the pension phase.

Higher-income property may therefore form part of an appropriate strategy in some circumstances.

However, yield should never be considered in isolation.

A high rental return can be attractive, but investors also need to consider the property’s underlying fundamentals, sustainability of the rental income, capital growth potential, costs, tenant demand and long-term resale prospects.

Our focus is therefore on finding the right balance between income characteristics and investment fundamentals.

What About Specialist Property?

Depending on the circumstances and the relevant SMSF rules, investors may also investigate specialist residential property models.

These can include:

These properties require particularly careful assessment.

The higher the advertised rental income, the more important it becomes to understand why the income is higher, who the tenant is, how sustainable the income may be and what the underlying property is actually worth.

We believe investors should assess the property independently rather than simply buying based on a headline rental return.

Location Matters

We don’t believe investors should start with:

“Which suburb should I buy in?”

Instead, we start with:

“What is the purpose of the investment?”

From there, we can consider which locations may best support the strategy.

Factors can include:

  • population growth
  • employment
  • infrastructure
  • transport
  • education
  • amenities
  • housing supply
  • rental demand
  • vacancy rates
  • affordability
  • future development
  • land availability
  • competing supply.

The right location for one SMSF investor may be completely inappropriate for another.

What Makes a Property Investment Grade?

At properT network, we use the term Investment Grade Property deliberately.

We are not simply looking for property that is available to purchase.

We are looking for property that demonstrates a combination of characteristics that may support its suitability as a long-term investment.

These can include:

Location

A location with sound economic, demographic and infrastructure fundamentals.

Land & Scarcity

Understanding the underlying land component and the availability of competing property.

Rental Demand

Evidence that the property is likely to remain attractive to tenants.

Property Quality

Construction quality, design, functionality, tenant appeal and ongoing maintenance considerations.

Supply & Demand

Understanding both current and future competing supply.

Income

Considering the rental income in the context of the property’s overall investment fundamentals.

Capital Growth Potential

Assessing the factors that may influence future demand and value.

Resale Appeal

Considering who may ultimately want to buy the property when the investment is sold.

The Property Is Only One Part of the Strategy

It is important to understand that an SMSF investment property should not be assessed in isolation.

Your SMSF investment strategy needs to consider the whole fund.

That includes your other investments, retirement objectives, liquidity requirements, risk profile and the fund’s ability to meet expenses and future member benefits.

The ATO specifically requires SMSF investment strategies to consider risk, return, diversification, liquidity, benefit payments and insurance.

This is why we don’t believe in a “one property fits all” approach.

Our Role at properT network

We are not your SMSF administrator.

We are not your accountant.

We are not your auditor.

And we do not provide personal financial advice.

Our role is property investment advisory and buyers advocacy.

We help you understand the property investment side of the decision.

That means helping you:

Define the purpose → assess the strategy → identify suitable property → independently assess the opportunity → make an informed decision.

Our objective is to help you avoid buying a property simply because it is being promoted as an “SMSF property”.

Instead, we want you to understand why the property may or may not be appropriate for your strategy.

Your Super. Your Strategy. Your Decision.

Your superannuation represents money being invested for your future.

That deserves a considered approach.

An SMSF may provide greater investment control, but with that control comes responsibility. ASIC’s MoneySmart guidance notes that SMSF trustees are responsible for investment decisions and compliance, and that an SMSF involves ongoing costs, administration and trustee responsibilities.

For that reason, an SMSF should only be considered where it is appropriate for your circumstances and objectives.

If you already have an SMSF, or are considering establishing one, speak with your appropriately qualified SMSF professionals about whether direct property investment is suitable for your fund.

If property forms part of that strategy, properT network can help you assess the property itself.

Looking for SMSF Property?

Tell us about your objectives, your preferred location, your investment timeframe and what you are trying to achieve.

We’ll help you understand the property investment options available and identify opportunities that may fit your strategy.

Your super. Your future. Choose your property carefully.

[Speak with properT network about SMSF Property]