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Between the June quarters of 2021 and 2024, self-managed super fund (SMSF) asset allocation for residential property increased by 26.4 per cent to $55.2 billion.
This significant increase has resulted in plenty of brokers diversifying offerings to engage with clients looking to go down this path.
It’s no accident that the popularity of these loans has seen a surge in recent years. Raising a deposit has become harder, forcing borrowers to explore different means of entering the property market.
However, the founder and director of Palise Property, Steve Palise, urged borrowers to consider the implications of entering an SMSF loan and to conduct proper research before diving in head first.
“Understand what LVR you can purchase at and decide what your plan for the property is. If it’s a residential property with a focus on growth, can you service the loan and have a good balance in your SMSF to manage this in the short to medium term? If you’re looking at a commercial property, do you have enough of a cash buffer for vacancy?
“Also, understanding which loans offer offset accounts can be helpful, particularly if you plan to keep purchasing over the coming years. If you’re paying off all the debt on the first property, you can’t then draw down on that equity to buy the second one, you’ll need to sell the property to realise any capital gain to then keep purchasing,” he said.
The long-term benefits of owning a property in SMSF can be lucrative, especially when considering the tax savings, Palise said.
However, this “long-term mindset” can be a negative to some who aren’t invested for the long haul.
“Using cash as a deposit allows better income from day one and the additional contributions you make, along with the rental income will allow you to pay debt down quicker and retire in a better financial position,” Palise said.
“The con in SMSF investing is the long-term mindset you need to employ (as we recommend anyway) along with strict lending requirements, i.e. not being able to withdraw equity on a property.”
An air of caution should be exercised when considering SMSF investing. It is an individual’s retirement that is at stake. However, Palise believes it will continue to gain popularity due to cost-of-living pressure.
“The true benefits of investing inside your SMSF are only now just being understood by either investors or other tax/financial advisor professionals.”
He added: “Education is key and don’t just get sucked into buying off the plan properties because your accountant recommends it. Look at the numbers and set yourself for a better retirement.”
Related: Why has SMSF property investing seen a surge?
