Best properties to go into SMSF

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28/06/2018

Shannon Davis from Image Property Management joins us in this special series for Your Investment Property magazine where we look at putting property into your self-managed superannuation fund.

Shannon is an expert in SMSF and deals a lot with investors who do exactly this.

Watch this 8-minute video and find out if there are any particular types of property that’s best to go into SMSF.


With thanks to Real Estate Talk – the only place where you hear all Australasia’s leading property experts. 

Transcript:

Kevin Turner:    Hello. I'm Kevin Turner from Real Estate Talk. In this special series for Your Investment Property, we're looking at putting property into your self-managed superannuation fund. Joining me ia an expert in that field, Shannon Davis.

Shannon has a company called Image Property Management, one of the biggest property management companies in Australia, in fact. They deal a lot with investors who do exactly this. I'm going to find out from Shannon what he believes or what he's seen are some of the best types of properties to put into a superannuation fund. Shannon, thank you very much for your time.

Shannon Davis:    G'day, Kevin.

Kevin Turner:    Shannon, are there any particular types of property ... does it have to be new?

Shannon Davis:    No, that's a bit of a myth out there, that it has to be new to be in the superannuation fund. Of course, there are certain restrictions with superannuation properties. One of them is that you can't borrow for improvement. For that reason, people are not going in and buying renovators and doing them up. They are buying, mostly, new or near-new properties, but it doesn't have to be new.

Kevin Turner:    Did I hear you say there that there's difficulty with borrowing money to improve the property?

Shannon Davis:    Yeah, there is. For example, say if you had to repair a kitchen bench. At that time, you wanted to maybe lengthen and extend. One way around that is to get an invoice for the repair job and then get another invoice for the extension of the kitchen bench. One would be able to be paid through your normal superannuation account, and the other one would have to be paid through cash. So, a contribution to ... and make that improvement. It is restrictive in a way, but not prohibitive in that way.

Kevin Turner:    What about the type of property? Does it have to be residential, or can it be commercial, as well?

Shannon Davis:    It can be commercial. In commercial, there's less restrictions. You can actually put your place of business into your own superannuation account and be the tenant. With residential, it has to be more arm's length. You can't put your own house and live in it and make that your superannuation investment. That is something that you need to look out for in that area.

Kevin Turner:    I've actually come across some people who didn't realise that that was the case. They've actually bought a holiday home, put it into their superannuation fund, and then ended up living in it, which can bring on some pretty heavy fines and penalties.

Shannon Davis:    Yeah, and really need to get a lot of advice before you jump into a superannuation type investment, and not just from a real estate person. More your accountants and solicitors to make sure that you're on the right side of the tax code and superannuation. It's a non-recourse loan, but like everything, it needs a tailored approach. I think a young person superannuation account might want to be chasing capital growth. Perhaps an older person's, closer to the end of their working life, might be more cash flow orientated and maybe looking to put a commercial property into their superannuation because it's got better cash flows.

Kevin Turner:    Just going back on what you said earlier about the less restrictions on commercial property. Does that make a commercial property a better proposition for a self-managed superannuation fund than a residential property, in your view, Shannon?

Shannon Davis:    It has to do with your timeline of things, but picking a tenant is easier than picking a business. Some businesses go bust and they look to be very successful. You can often see tenancies in the commercial space be one or two years. A property that I recently leased had been vacant for two and a half years. Now, if I've got that in my superannuation account, that's just going to be dire for me if I'm relying on those returns. So, it's something, like anything, needs a lot of advice and a lot of prudent selection criteria before jumping into it. But it may suit you depending on your circumstances.

Kevin Turner:    Do you need to have your self-managed superannuation fund or anything set up prior to buying it? Is it more complicated to do that, Shannon?

Shannon Davis:    Yeah, it is. You need to have a superannuation account. What's going to be vital is that you've got enough money in there to begin with. They're only probably going to lend you 70 or 75%. We've seen this space become a lot more restricted and a lot of banks refusing to lend to superannuation accounts. What's vital, also, is your last two year's contributions. As long as all those are okay, they'll give you certain provisos of what type of property you can buy, what the yield needs to be to be expected, so that your account doesn't run dry. It's a non-recourse loan, meaning the banks can't really come at you for your own properties, should anything happen in that superannuation loan. They'll set up a bare trust, which holds the debt for that one particular property. Unlike other properties, you can't use the equity of that property to go and buy another property. It's just going to be contained to that one property.

Kevin Turner:    If I'm not able to live in it, is that only while I'm working? What if I retire and then want to move into that property? Would it naturally come out of my super fund, or can I move it out?

Shannon Davis:    You could move it out. That will have saved you in capital gains tax implications. It's not prohibited that you can't change the entity at a later date. Again, begin with the end in mind, the short-term, the medium-term, the long-term, just to make sure you're not making those expensive mistakes. We've recently seen in a recent budget that our seniors can sell their homes and contribute to superannuation and not lose their pension. It's always a changing space and evolving all the time, the financial risk of the banks and the legislation from the budgets from the federal government, so it's something you've really got to be abreast of before you decide to take the plunge.

Kevin Turner:    In this series, we're going to be talking to a legal expert and also a financial expert, but it's been very good to get your first hand experience of this along the way. Just in closing, Shannon, if I was interested in doing this, who should I be talking to to get the advice?

Shannon Davis:    You've got to have your property team. So, solicitors to draw up the trust accounts, the accountants to know your tax positions and how you're going to set that up and also some advice on what type of property and the pros and cons of that property is going to do for your superannuation account over the long-term. You can definitely get that leverage into your super account and get the gains that go with it, but leverage, if you get it wrong, attracts higher losses, too. I think there's a lot of people out there that have gone and bought new and off the plan, thinking they're doing the right thing. I think they've devastated some of their superannuation gains. In the meantime they've really depleted their funds to a point where their retirement's going to be far worse off.

Kevin Turner:    Anyone wants to contact you, Shannon, the website address ...

Shannon Davis:    It's www.ImageProperty.com.au. My mobile number is 0400 179 605.

Kevin Turner:    Wonderful. Shannon Davis has been our expert with some nice sound effects in the background, there. I can hear that you're obviously on a location somewhere, so I appreciate you giving us your time on a-

Shannon Davis:    Lovely Kingscliff today, Kevin.

Kevin Turner:    Kingscliff, is that where you are?

Shannon Davis:    Yeah. Worked at AREC last weekend, so gave myself a weekend off this week.

Kevin Turner:    Good on you. Shannon Davis has been my guest from Image Property. Shannon, thanks very much for your time.

Shannon Davis:    Thanks, K.T.

 

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