For many, just owning their home is the great Australian dream. With housing prices continuing to grow at a steady pace overall, those who own their residence (even if mortgaged to a bank) have the security and peace of mind from knowing that they are in the property market. Unlike so many others who have been left behind by capital growth and can no longer see how they could afford to get into their own property. The way property has appreciated, most would like to have more property, if they could afford it, to grow their assets for a more comfortable retirement.

In the past, Self Managed Super Funds (SMSFs) have not been able to borrow money for investment purposes. With the recent changes to SMSF legislation you are now able to gear your superannuation fund to take advantage of the array of benefits property investment offers. A relaxation of the laws surrounding SMSFs now allows them to effectively borrow up to 80% in some cases to purchase investment property through a documented structure or process often referred to as a "Property Warrant".

By taking advantage of these changes in legislation, you only need enough cash for a 20% deposit and costs to purchase an investment property, so about $100,000 in your existing super fund is enough to get started. It also means that SMSFs can now be “leveraged”. If, for example, a SMSF purchased a $350,000 property with a $70,000 (20%) deposit, $20,000 in costs, and a $10,000 buffer, the total SMSF investment would be $100,000 or 28.5% of the property value plus the buffer. So the SMSF investment will be leveraged by 100%/28.5%, which means that the growth of the funds will be about 3.5 times the rate of the capital growth on the investment property. In other words, if the property grows at an average of just 6% per year, the growth of the fund will be about 20% per year. How many superannuation funds achieve that sort of average rate of return?

The share market has taken a huge hit recently and with the vast majority of superannuation funds investing primarily in shares the consequences have been extremely detrimental to many Australians’ super funds. While there has been a lot of talk about how badly the economy has been performing of late, the fact of the matter is that the property market has remained strong, especially for investors that have made educated, informed decisions when choosing to purchase an investment property.

Sold on Property has developed an easy, trouble-free process that allows investors to purchase real estate financed by their self managed superannuation fund. Investing in property this way gives you the same control over your investment that you would have buying it yourself. The only difference is that you can’t take advantage of the profits until you retire. But then again, that’s the whole point of super funds.

If you choose to establish a self managed superannuation fund, you and all other members, will be a trustee of the fund. The requirement that all members be trustees ensures that each member is fully involved and has the opportunity to participate in making decisions about the fund. This means, as a trustee, you will be required to make investment decisions about the fund for the benefit of all members. It is important to understand there are severe penalties for trustees who misuse the fund’s superannuation benefits and who do not comply with the relevant legislation.

The following are the four requirements for setting up a Self Managed Super Fund. Generally your accountant will organize the establishment of the fund for you, however, it is your responsibility to make sure all legislative requirements have been met.

• Drafting the trust deeds and appointing trustees and members
  
  
  • obtain a trust deed and make sure it contains all the relevant requirements. This includes appointing consenting trustees, transferring or ensuring there is a settlement of property, and ensuring the trust deed is dated and properly executed so that the trust is legally established.
  
  
• Obtain an Australian Business Number and Tax File Number for the fund
  
  
  • you will need to complete an Application to register for superannuation entities (NAT 2944), either using the paper form or online at www.abr.gov.au. Once the form has been accepted, the fund will be allocated a tax file number and an Australian business number. The fund may also register for GST, if applicable.
  
  
• Implement an investment strategy
  
  
  • the trustees must formulate and follow an investment strategy for the fund, taking into account risk, return, diversification, liquidity, cash flow, asset allocation and the ability to discharge existing and prospective liabilities.
  
  
• Open a bank account
  
  
  • a bank account is generally required to keep your superannuation fund assets separate from your personal assets and to manage your contributions, investments, earnings and expenses.

A trust needs to be set up by an accountant or if you use the property warrant product, a trust will be set up and established by your financial planner or accountant. If you currently don’t have a qualified accountant proficient in SMSF’s, Sold On Property have associate companies that can assist you as their main focus is establishment of trusts and the property warrant product for their clients and provide client friendly options to suit their lifestyle and retirement needs.

To find out more about Self Managed Super Funds or how we can help you setup up your own fund and secure an investment property that will strengthen your funds performance and return, contact us at Sold on Property.