#006 - DON’T Buy Property In Your SMSF (Until You’ve Watched This) ⚠️🏠

In this episode of SMSF Insider, host Troy, founder of Blue Chip SMSF Services, explores the benefits and complexities of buying property through a self-managed super fund (SMSF). He highlights the potential for gearing, allowing investors to leverage their funds to purchase property, and emphasizes the tax advantages, such as the absence of capital gains tax when selling property in pension phase for those over 60. Troy also discusses the importance of proper execution of the bear trust in conjunction with property contracts and stresses the necessity of consulting a licensed advisor before making any investment decisions. Tune in to learn how to navigate the intricacies of property investment within your SMSF and take charge of your financial future.

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Please note: The information provided in this recording is for coaching and educational purposes only. It should not be considered personal financial advice. Everyone’s situation is different, so before acting on any of the content discussed, please seek independent financial advice tailored to your specific circumstances

Timestamps:

00:00:00 - 00:00:00: Introduction

00:01:14 - Benefits of Purchasing Property in SMSF

00:02:07 - Understanding the Risks and Limitations

00:03:12 - Common Mistakes to Avoid

00:05:30 - Importance of Proper Bank Account Setup

00:06:25 - When It Makes Sense to Buy Property in SMSF

00:07:17 - Getting the Right Advice for SMSF Success

Episode Transcript

(00:00):
Why do people want to buy property in their SMSF? You've
got $200,000 or $300,000. You can get gearing so you can
borrow. It's obviously as well when you sell that property later
in retirement, there is no capital gains tax providing you're
in pension phase and over the age of 60. Don't have it go into your personal bank
account because that is a no-no. It needs to go into your bank

(00:20):
account that is attached and in the name of your SMSF. when
buying property through SMSF and make sure you are signing
or executing the bear trust in the right order with the
contract of the property you're purchasing. I can't tell you how many times we've
dealt with. Welcome to SMSF Insider, where we
help busy professionals to gain financial independence using an

(00:41):
SMSF. Hi, I'm Troy, founder of Blue Chip SMSF Services.
Now, over the last 20 years, I've helped thousands of Aussies manage the
complexities of self-managed super funds. And in this podcast, I'll
answer your questions, break down the myths so you can take charge of your
financial freedom. Let's get into it. Just a quick disclaimer and just a
reminder that this is not personal advice. So make sure
you speak with a licensed advisor before making any investment decision.

(01:05):
Don't buy property in your SMSF until
you've listened to this episode. Guys, welcome to this current
episode of SMSF Insider. Just
talking a little bit about buying property in your
SMSF. So why do people want
to buy property in their SMSF? Well, mostly

(01:27):
because it is a good strategy, all in
all, if it's done correctly. You can get gearing so you can borrow. So
you can, if you've got $200,000 or $300,000 and more,
you can borrow inside your fund to purchase property. And
that can be a real big plus
over the longer term. So that's one of the main reasons. Obviously as

(01:49):
well is when you sell that
property later in retirement, there is no
capital gains tax providing you're in pension phase and over
the age of 60. So those two benefits combined are
why this particular strategy works. What we want to talk about
is what can actually go wrong. We want to understand what

(02:10):
are the pros and cons, and we want to start with what are the risks associated with
this particular strategy. One of them is, obviously, when
you're purchasing property and you've only got enough money
in your fund to purchase one particular property, the fund becomes a
little bit illiquid. You don't have a lot of diversification, so

(02:31):
you've just got one lumpy asset in the fund. Although the
strategy will still work, potentially, if you're buying in the right areas,
you don't have any
diversification. So if you are using this strategy, it is good to certainly
have some cash, but it does work better when you
are diversifying and you've got other assets in your fund. Having one property or

(02:54):
a single asset in your fund can work, but it
is beneficial if you've got some diversification. That's
one thing. You want to make sure you've got diversification. You
can't live in the property. So those that
think that they can purchase the property and then live in the property, that

(03:17):
is a no-no. So you cannot do that. But you can live
in the property once you retire. You can transfer the fund into
your own name and move into the property at that point. But you cannot do
that or you can't even lease it to or rent it out
to a family member during that time. So you can't lease
it to a brother, sister, mom, dad, uncle, auntie, it

(03:37):
needs to be an arm length tenant that's renting the
property. Selling takes a bit of time, so if
you're wanting to sell the property, I mean, the current market, it's okay,
but in down times, it can take some
time to sell a property, so you need to be mindful of that when you're purchasing property
through SMSF, and it does obviously cost,

(03:58):
there is a cost associated with selling a property with agent fees, so
you need to be mindful of your exit strategy in that
regard as well. Common mistakes when buying property
through your SMSF, so you want to make sure you're purchasing it
in the name of the SMSF or the Bayer Trust if you've got borrowings, so
making sure you get that part right. Make sure your solicitor

(04:20):
is, that you're engaging to do your conveyancing, knows
which name to put on the contract. I can't tell you how many times we've dealt
with solicitors that are asking us for
the entity name to put on the contract. I mean we create the
entities but we don't give advice on which name goes on the
contract. We know which one's supposed to go on there and so should they.

(04:42):
So make sure you're choosing a solicitor that knows which entity should
be going on the contract and also make sure you
are signing or executing the bear trust in
the right order with the contract of
the property you're purchasing. So each state is different. You need to understand
which needs to be executed first, whether it's the property contract

(05:04):
or the bear trust. So make sure you get that part right, speak to your
solicitor about that. They should be able to give you
the right advice in that regard. Just quickly guys, if you're a busy
professional fed up with traditional super funds and overwhelmed by
the setup of your SMSF, we can help. Book in a call with my team
using the link in the show notes and let's build your future on

(05:25):
your terms. Now, back to the episode. So you want to make sure the
tenants are paying is going into the bank account that is
the bank account for your SMSF. So don't have it go into your personal bank
account because that is a no-no. It needs to go into your bank
account that is attached and in the name of
your SMSF. So every SMSF must have a bank account attached

(05:47):
to it, otherwise it's not going to be able to accept rollovers
firstly when it's established, it's not going to be able to accept contributions from
your employer and personal contributions, and it's not going to
be able to pay any outgoings of the fund. So
make sure you have a bank account set up in the name of your
SMSF. Engage someone who knows what they're doing because it

(06:10):
is a complex structure to establish, so get the
right advice and have it done right the
first time. Otherwise, it can be a costly mistake. When does
it actually make sense? I've covered off on all the don'ts, all
the cons. Now it's time to talk about the flip side of
the coin. So, you should do it when you've got enough

(06:30):
to have a bit of a balance in your portfolio so you can have
property and some shares. Obviously, that's a great time to
do it, having a bit of diversification, stress test the structure to
make sure that when you have diversification, you're going to
be less likely to see volatility during

(06:50):
those downtimes. So make sure you've got some, not
just growth assets, but some defensive assets in there as well. And make sure
you understand all of the legal obligations because there are
quite a few. Your SMSF professional should be able
to assist you in this area and help you navigate the minefield that
is SMSFs. So yeah, do work with an SMSF specialist because

(07:11):
trying to do this yourself can be a nightmare and
will be a nightmare for you. So do engage somebody who knows what they're doing.
The last one is what you need in place to have
a successful SMSF. And that is get some advice, make
sure you have people in your corner who have
experience in this space. Don't speak to your next door neighbor or

(07:32):
your gardener or somebody else who doesn't really
have experience in this space. Speak to someone who has experience in
this space. You wouldn't take advice if you're having heart
surgery, you wouldn't get advice from your next door neighbor. So
don't do that with your SMSF. Get specialist advice, do
it right, and your SMSF should be a

(07:53):
success. Thank you for listening, guys. If you have
any comments, drop them in the comment section below. If you'd like
us to talk about something in particular, we'd love to hear it
and we'd love to chat about it. So please shoot us a message and we'll
try to include it in one of our upcoming episodes. Thanks for listening
to SMSF Insider. Thanks for tuning in to this episode

(08:14):
of SMSF Insider. If you got value from this, make sure you subscribe
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