5 Tips for SMSF Property Investors

Using a self-managed super fund (SMSF) to invest in local CBD property is becoming increasingly more and more popular these days. However, using a SMSF for investment purposes is a totally different kettle of fish to simply buying property in your own name. There are so many additional things you need to consider… compliance with special laws, lending requirements, legal costs and what kind of CBD investment property you’re after, etc. As such, purchasing a SMSF property investment means you need to do your homework.

 

To help you, here are five tips for SMSF property investors:

 

Location. Location. Location.

When it comes to reliable rental return and meeting loan requirements, it’s all about the location! It’s important to carefully consider what areas are best to invest in; keep in mind that locations with multiple industries fuelling the economy are ideal – which is why investing in our local Brisbane CBD is perfect! A common mistake we see time and time again comes from investors putting all their eggs into one basket by trying to capitalise on purchasing property in areas that are heavily reliant on one industry for future growth, e.g. mining towns. This is always going to be a dangerous move because if that industry collapses, so too does your prospective tenant pool, which could severely impact your loan repayments and potentially mean selling the property at a loss.

 

Make sure the property is insured correctly

It’s imperative that your SMSF property has the right insurance measures in place otherwise the implications can be extremely detrimental to your future retirement plans. Insurance policies to think about are replacement insurance in case of a fire; public liability insurance is equally important to avoid any nasty damages actions as a result from a tenant, or one of their guests, injuring themselves in an accident on the property and lastly; life insurance is also something each SMSF member should consider as this pays off any property debt should that member die before the loan is paid out.

 

There is no Enduring Power of Attorney for each member

What... no Enduring Power of Attorney? That’s right! Under superannuation law, every SMSF member must also be a trustee of the fund or a director of the corporate trustee of the fund. However, should a member lose their mental capacity they can no longer be a trustee or director, which means your SMSF becomes non-compliant.

 

Consider the impact of a death or divorce within the SMSF

A SMSF is entitled to have up to four members. This may comprise of mum, dad, their adult child and partner. Alternatively, it could be two couples who know each other and/or operate a business together. Regardless of who makes up a multiple member SMSF, it is important that every member is aware of the direct impact a divorce or death would have on the fund.

 

For example, should two SMSF members get divorced, superannuation benefits are considered assets and can be split under Family Law Act property proceedings. Thus, should a SMSF-owned investment property or business premises comprise majority of the super fund then it’s more than likely the property will need to be sold. What if a member dies unexpectedly?  If this were to happen then the death benefit (for their share of the property) will be paid out to their selected beneficiaries. Again, possibly meaning the property will need to be sold.

 

Set up the correct legal structures

As you can see, while buying an inner city property through your SMSF is a great investment opportunity, it’s also an extremely complex one. There are lots of things to consider so you can ensure your CBD investment is, exactly that; an investment. Thus, in order to gain optimum results from your investment property, it must be set up correctly and in compliance with the law. If you’re unfamiliar with the correct legal structure, it is crucial that you set up a meeting and speak with qualified professionals to ensure you meet all legal aspects of the investment. Taking the time to do this and set up your SMSF investment property early on will save your time and money in the future. 

 

Speaking of industry professionals, the team at HS Brisbane Property have years of experience in the local real estate market, especially when it comes to purchasing inner-city units for investment purposes. So if you’re considering investing in Brisbane CBD property, with or without the help of your SMSF, call Hannah Schuhmann on 0419 782 133 to set up a meeting.