Self-managed super the ideal vehicle to build wealth through property investment

Ever since the global financial crisis hit there has been an upsurge in self-managed super funds (SMSFs), as many managed super funds recorded big losses, along with people's hard-earned retirement savings.

Super funds invest in income-bearing vehicles with the goal of producing investments that their members or beneficiaries can retire comfortably on, however they tend to charge fees and make the investment decisions. While many may not know it, these same goals can be achieved (and sometimes more effectively) by managing one’s own super fund.

Managing one’s own super fund allows the beneficiary to take control of where funds are invested, be it in managed funds, share-related investments, bank or term deposits or property, making self-managed super funds the ideal vehicle to build retirement wealth, especially through property.

Property investing is the backbone of most successful funds, and when it comes to managing your own super fund, the same holds true. Making it even more attractive is the fact your personal SMSF can invest in both residential property and in commercial property – even the premises that house your own business.

For those who need assistance to set up or manage their own SMSF, there are numerous services and consultants that can help with establishing and auditing an SMSF. These range from online services and financial advisories to specialist firms.

Most people’s real wealth is created directly or indirectly through or via property.  So why put your hard-earned cash under someone else’s control when we can help you set up a SMSF and  put your hard-earned cash in solid foundations of bricks and mortar?

With one in five Australian households owning an investment property, it’s surprising that less than 4% have used their superannuation to buy one. This means that many people are missing out on the great opportunity to invest in direct property using their super fund. Imagine selling your investment property in retirement, say in 10, 20 or 30 years’ time, and not having to pay any capital gains tax.

Superannuation is an effective way for Australians to invest, and it is taxed at 15% only. Capital gains tax is 10% if the investment is held for more than 12 months or nothing  if sold in pension phase. There is nothing outside of superannuation that can compete with this favourable environment. On the back of these parameters, a superannuation strategy with property becomes one of the best investment options available to Australian’s today.

Properties held in super could have strong cashflow models because up to four members can pool their employer contributions into the one investment fund.

No doubt, property investing in personal names outside of super is already a lucrative strategy, however doing the same with a SMSF is like turbo-charging your investment. SMSF loans are paid down much faster, there is almost no drag on returns the investment can also be leveraged to maximise future upside value.

While saving on fees that usually apply to managed funds is an obvious benefit, it’s the ability to control the investments in one’s SMSF that has motivated many Australians to take charge of their own super fund. With your own SMSF, you will have full control and flexibility with regard to your investment choices. And, additional contributions to one’s SMSF such as wage sacrifice will reduce tax payable on income and increase the investment power of the fund.

Generally, there is no set minimum balance that a super fund needs to have in order to be self managed, but one rule of thumb is that your balance should be greater than $50 000 to $100 000. In other words, the cost of managing, auditing and administrating a SMSF should be in proportion to the balance.

Establishing a SMSF can be a great vehicle to build a property portfolio that enjoys considerably lower taxation while offering greater flexibility and the scope to create wealth for retirement on solid foundations.

Robert Projeski is a leading property finance expert and the founder and managing director of Australian Mortgage Options. He has appeared on radio and TV and written extensively on property and finance matters.