The Property Investor Playbook
Welcome to The Property Investor Playbook, your ultimate guide to building wealth through property investment. Hosted by Daniel Chadrawy and Lara Osborn, this podcast offers step-by-step insights into growing your financial portfolio through real estate.
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The Property Investor Playbook
Planning Ahead For Wealthy Retirement With SMSF Strategies - The Property Investor Playbook
Unlock the secrets of successful property investment through Self-Managed Super Funds (SMSFs) with our expert guest, George from Blue Rock. In this enlightening episode of the Property Investor Playbook, we uncover the growing trend of using SMSFs for property investment and explore the significant differences between traditional super funds and SMSFs. George shares his profound insights on the tax benefits and compliance aspects of SMSFs, alongside his personal journey of investing in properties in Airport West, Melbourne. Plus, in our "Fast Five" segment, discover George's fun side, including his love for Nutella.
Thinking of setting up an SMSF? We've got you covered with a step-by-step guide that explains everything you need to know. From the essential documentation to the typical timeline, we walk you through the entire process, ensuring you’re well-prepared for a smooth establishment. Whether you’re a sophisticated investor or seeking advice from a financial advisor, we discuss the motivations behind setting up an SMSF, particularly focusing on wealth creation and property investment.
Get ready to dive deep into the intricacies of borrowing to buy property within an SMSF. We explore borrowing capacities, SMSF-specific loans, and the types of properties best suited for SMSF investment. Learn about the tax advantages, long-term strategies, and the importance of consulting knowledgeable advisors to avoid common pitfalls. This episode is packed with practical tips and valuable insights designed to help you make informed decisions and achieve successful investment outcomes through SMSFs. Don’t miss out on this comprehensive guide to property investing with SMSFs!
Welcome to the Property Investor Playbook. I'm Lara.
Speaker 2:And I'm Daniel. We're going to show you, step-by-step, how you can grow your wealth. So, lara, we've got a special guest today, george.
Speaker 1:We do George from Blue Rock yeah.
Speaker 2:Blue Rock big accounting firm down in Melbourne yes, george, specializes in the self-managed super fund space compliance around it. Talk about the trends that's happening at the moment, why people are opening up self-marriage super funds yeah, so it might be a bit interesting.
Speaker 1:Definitely, I learned a lot today. I'm definitely not an expert in SMSF and I found out some really good tax benefits, yep, and, I guess, different ways that you can use property investment for wealth building for your future, which is really nice. I actually did some research before our podcast today that I wanted to share. So there are $3,852 billion in assets in traditional super funds as of March this year, compared to only $932 billion in SMSFs.
Speaker 2:That's crazy, huh.
Speaker 1:Yes, it's crazy, crazy, huh. Yes, crazy. The crazier number was when you look at the median average for each person in a super fund or an SMSF. So the median assets per traditional super fund is $61,000. That stat is a little bit older, as of 2021, but so is the next one, the most recent data from the ATO, which came out in 2021, the median asset per SMSF member is 472,000. So 61,000 median in traditional super versus 472,000 in SMSF. So it's definitely an underestimated tool, I think, for property investors, because even in that, 60 grand to 400 and something, yeah, I guess the more, the more knowledge you know.
Speaker 2:It's just, it's interesting out there what's out there, hey, so yeah, so much um techniques that you can use.
Speaker 1:So let's deep dive, let's uncover it yeah, let's go, let's get into it, hi daniel lara how are you? I'm good. How are you lovely? In paradise nice to have you on, george hi guys, how are you going? We're good, we're good. Where are you virtually coming to us from today?
Speaker 3:I'm coming from our offices at the rialto on collins street in melbourne nice, nice.
Speaker 1:I like melbourne. Yeah, me too. We've had a few conversations actually about the property market in melbourne recently, so I just don't like him in rugby league. Just keep winning, just stop. All right, we might jump into. We have a fast five questions, so we give you around 30 seconds to answer them and we'll see how we go.
Speaker 3:Sure.
Speaker 1:Perfect, you got your timer ready, daniel.
Speaker 2:Give me a sec. Clock. All right, lara. When you're ready, ready, set wiggle. All right, my clock. All right, lara. When you're ready, ready, set wiggle.
Speaker 1:All right, what's your name and age?
Speaker 3:I'm George Caraviers and I'm 43 years old.
Speaker 1:How many properties do you own? Two. What's your biggest property regret?
Speaker 3:Probably spending a bit of money on an older property that I purchased in the past to renovate over capitalized.
Speaker 1:Okay, what's one thing about yourself that you've never told anyone?
Speaker 3:Oh God, that's a hard one. I think I tell everyone everything, especially my wife. Maybe that I secretly eat Nutella out of a jar at night when no one's watching I love that.
Speaker 1:What's your most embarrassing moment? Or maybe it's the same getting caught, maybe having very good, very good. How long were we, daniel?
Speaker 2:47 seconds very nice.
Speaker 1:I do love a good nutella straight out of the jar. I purposely have to not buy it so that it's not in my house, so that I don't eat it.
Speaker 3:Doesn't help when you've got one with your name on it.
Speaker 1:Fair enough, fair enough. You said you've got two properties, was it? Yes, nice? Can you tell us about how long you've had them or where they are, or anything?
Speaker 3:They're in Airport West in Melbourne, probably for about five years now.
Speaker 2:Yeah, nice, what kind of made you buy property, like what was the reason why you personally wanted to buy a property?
Speaker 3:I guess it was watching others buy property and, as we've gone through a good boom in the last couple of, you know, 10 years, I guess it was watching others buy property and, as we've gone through a good boom in the last couple of, you know, 10 years, it's a solid asset, obviously, I can see it. So one thing that made me go towards property is that it's something I can physically see, and everyone has perceptions of what they want to invest in, but I'm more of a person that likes to be able to see something rather than have it, I guess in the stock market, where I don't know where it's at.
Speaker 1:Yeah, fair enough. Yeah, we've had a lot of conversations on the podcast so far where everybody kind of says something very similar around. It's a physical asset, it's tangible and it's one of the safest as well, so it's definitely a good one, yeah okay and I think you said it right Everyone who bought in the last 10 years has experienced a boom.
Speaker 2:So if you ask anyone who's bought a property, they're going to say that it's a positive story, like you said, george. So I guess the main reason why I want to do this and I guess we want to do this we want to tell people and investors how you can purchase the property and how it's not as daunting as you may think it is. There are ways that can make it a lot easier.
Speaker 1:yeah, as long as you've got your network around you, I think you're pretty good if you've got the right support network yeah, definitely, and there's so many different ways, these days as well, to get into property, and we're here to talk about one of them today. Um, can you tell us a bit about your background?
Speaker 3:um, so far, your like professional background so um I've been working for 18 years. I'm a chartered accountant, um I specialize in smsf, so self-managed superfund administration and compliance. So over the journey I've worked at multiple firms. Um about seven years ago I joined the firm that I'm at now called Blue Rock to build their SMSF service.
Speaker 3:So over that time, being able to help people with either set up an SMSF, seeing them go through the journey of buying property or investing in shares, doing all different types of things that an SMSF allows you to do, and I guess the service that we provide here is to make sure that they're always compliant, because self-managed super fund is highly regulated.
Speaker 1:Yeah.
Speaker 3:Make sure that the clients are guided along the path, whether they need advice on investments, on, say, the compliance with the SMSF, as well as making sure that the fund gets ordered every year without any issues, then let's start, I guess, and go straight into SMSF.
Speaker 1:How would somebody go about setting up their own self-managed super fund?
Speaker 3:Sure, there's a few options that they've got here. One is there's people that are, you know, sophisticated investors and they know what they're doing, and they'll go set an SMS up through their accountant, or the other pathway to this is actually to speak with a financial advisor to determine if an SMSF is the right option for you and does it fit in with your retirement strategy.
Speaker 1:Yeah, okay, nice. What would you say would be, I guess, the key documentation that people need to get ready in order to give you or their accountant, to kind of kick off this process.
Speaker 3:Well, essentially, establishing an SMSF is quite easy. There's a form that we would provide the client for their details, so their personal details, what they want to call the SMSF. If they're borrowing, they'll be required to set up a limited request borrowing structure and so that fill in those details as well. We would then prepare the documents from our legal team, send them out to the client to sign and once we have them back, we're then able to go to the ATO to request the establishment of the fund to obtain its ABN and TFN. Okay, that's good to know Just a question.
Speaker 2:You said something just before about it. I just want to ask why would someone go out and set up a self-managed super fund? So you were asking about. You said something about retirement, so I know a lot of people talk about it. You have the family barbecues. You're just talking to a person at the coffee shop. It's like it seems like self-managed super fund is on everyone's radar. So just why do people come to you to open up a self-managed super fund?
Speaker 3:Predominantly it's part of their strategy and wealth creation for retirement, as the SMSF allows for, I guess, more options that would get from an industrial retail fund specifically around buying property. The only way to buy property with your superannuation is to set up a self-managed super fund. So there's that angle. They've spoken to the advisor. There's others that are business owners and they're currently either renting a commercial property or they are thinking about expanding their business. They need a commercial property and they might not have the capacity to borrow personally, but they could utilize their superannuation savings to do that. So it varies how they come across to us. It just depends on what they're trying to achieve. But, but the most important thing is to make sure that they know what they're doing and, if they're not too sure, to seek guidance from their advisors.
Speaker 2:Yeah. So, like you said, you need your financial planner, so you need your team practically to help you and give you the right advice. So I know no one's going to go open up a stock market fund without a particular purpose or reason. So they've, before they do anything, they need their priorities set straight. Um, just on that as well. Another question I want to ask, and I'm sure the viewers and listeners want to hear about it. So it's a wealth creation technique as well, so people can open up a self-made super fund, like you said, some business owners to kind of borrow that property if they're borrowing capacities max in their personal situation and I'm sure you got to go through the right avenues to check that um, have you? Is that becoming more of a common thing that you're seeing day to day, and especially in the last two to three years?
Speaker 3:um property with sms has always been kind of strong. So, like I mentioned earlier, I'm someone that likes property over shares. So, depending on the client's requirements, um people that love property will use this avenue to obtain more property yeah and that's, I guess, got to fit in with their strategy. So everyone's got a different strategy and different requirements that they want and goals. So most people are coming for SMSFs, I guess for the property aspect of it Good Interesting.
Speaker 2:The biggest question is how long does it take to actually open up a self-managed super fund? So say, the client's gone through their strategy, they got what they need done correctly. Now they come to you. I want to open my self-managed super fund, George, when do they start? How long does it take? What's the first thing that you would advise someone to do?
Speaker 3:So we say between two to six weeks. The process is that you'd fill out the form for requesting your SMSF establishment. Once we get that back, we would send the documents out to the client to sign. Whether they want to come into the office, they can come into the office as well and sign them. Once they're signed, we apply to the ATO to register the SMSF and so it's up to the ATO at that point in time to look through the process, the application form, and then approve the SMSF.
Speaker 3:It's important to note that if someone is applying for an SMSF and they've got outstanding matters with the ATO so, for example, they haven't lodged their prior year returns and they're overdue, or they owe the money to the ATO and they're delayed on their payments, it will put a hurdle in place where the SMSF might not get approved until all that's sorted. So it's very important when clients are coming to you, make sure your ATO requirements, your personal tax, any business accounts that you've got with them, that you're lodging accounts for, are up to date. Otherwise I'll put it on pause until you clean it up and then they'll approve the SMSF. And the reason for that is this the ATO is pretty much saying if we're going to let you set up a self-managed super fund.
Speaker 1:We want to make sure that you're up to date with all your tax requirements, um, and essentially, when you have an account and take care of that for you, there's something less to worry about. Yeah, you mentioned the, the tax requirements. Are there specific tax requirements that they need to understand or know about before setting up an smsf, or will you kind of guide them through that process?
Speaker 3:So I think, before they set up an SMSF, if they're using an advisor, the advisor will explain that to them. If they're not using an advisor, the questions can vary. So it depends on what the client's asking. But what?
Speaker 3:we would run through is explaining to them the tax consequences of investing in an SMSF. And by that I mean if you are in accumulation phases, which is when you're building your wealth in a super fund. Income is taxed at 15 percent um, and then capital gains are taxed 15 percent in the first 12 months. After the first 12 months, income is discounted by a third, so the effective tax rate on capital gains is 10 percent. So property being an asset that you don't usually buy and sell within the same year, you're holding for the longer term um, you could effectively, before retirement, pay 10 on the capital gain versus you know, in your personal world could Max at sort of 46 cents in the dollar. But then when you go into retirement phase, which for most people is 60 years old, and you start a pension in your superannuation fund, the tax rate goes down to zero for balances under 1.9 million.
Speaker 1:So let's say you bought a property for 500 grand.
Speaker 3:By the time you retire it's worth 1.5. You can essentially sell that property in your super fund and pay zero percent tax yeah, wow, that's definitely an amazing benefit.
Speaker 1:Yeah, that's good, and I think that's probably a tax benefit that a lot of people are unaware of is that if you sell that property in your SMSF in your retirement phase, you'll pay no capital gains.
Speaker 3:Yes, and, like I said, there are some caps to be mindful of. We have those discussions with clients so they can understand their situation. It's very different from someone that's got, say, $300,000 in an SMSF versus someone that might have $4 million in there.
Speaker 1:Yeah, okay, but you said the cap was somewhere around 9 million. Is that what you said?
Speaker 3:No, the cap is 1.9.
Speaker 1:1.9. Sorry, I misheard that one Per member.
Speaker 3:So essentially you're getting close to sort of 3.8 million between a mom and dad in an SMSF yeah, okay, that's good to know.
Speaker 2:I guess a lot of people would be opening as a couple, right, smsf I have a lot of um people ask me all the time that I've read something online. There's an article in newspaper, all this kind of stuff, but so much super fun there's so much information out there.
Speaker 2:I just feel like the last five years I've never, heard so much information about so much super fund in my life so I know know it's been around for a while. I know banks have their restrictions. People have their restrictions. They need to know what they're getting themselves into. You've been in the game for a long time. Have you seen any trends of people opening up in the recent years? Have you seen people kind of prefer it more or less? Is it more of a riskier stage this day and age? You would say?
Speaker 3:I think it goes in cycles. Um, just like the share market, so there's a property market as well. Um, like, at the moment, all the news it's like melbourne is sort of like going downwards as opposed to the rest of this country is going up. So, uh, I think it's important that people that are thinking about an smsf and thinking about property in an smsf it's to speak to the right guess property investment experts to guide them where to be buying property If they're not too sure. That's key. But in terms of the last 18 years it just changed. It depends on the client, what they want to invest in. That depicts where their money goes in the SMSF.
Speaker 1:Yeah, Over the last 18 years have you seen a noticeable change in how many people are wanting to set up an SMSF.
Speaker 3:It's definitely increasing. The younger generation wants to take control of their money. Australia's lust for property has obviously boomed the SMSF space. The negatives on that. There's some coming out saying, oh there's all these SMSFs buying property which makes the housing shortage for other people. But at the end of the day, the market's open to everyone and if it's in the right thing to do for them, it's a strategy right.
Speaker 1:Yeah, definitely. Can you tell us a little bit about the different ways that people can buy property through an SMSF?
Speaker 3:Yeah. So there's a number of ways that you can buy property. Probably the two simplest ways to buy property is you set up the SMSF. You have enough cash in your SMSF to buy the property outright. That's probably the most simplest form of purchase. You can also borrow to buy property in the SMSF. So if your money is with an industrial retail fund, you can't borrow in those funds, you can't invest in direct property. So if you wanted to set up an SMSF, you could borrow to buy the property and then essentially what happens is you rent out that property, the rental income goes into the SMSF and the SMSF then pays the loan.
Speaker 3:So, as you would know, it's important to speak with a broker, see how much you can borrow before setting up an SMSF, working out all your numbers, speaking to your advisors and making sure that it all lines up. And the key to that is, if you are going to borrow to buy an SMSF, so if you are going to buy property in SMSF, that you set up the SMSF first. I've had clients in the past that have come to me and said to me I've gone to an auction on the weekend and I bought a property and I've paid the deposit personally. It's a separate structure to your personal world. So the deposit has to be paid from the SMSF, the loan has to be from the SMSF. You've got to do it all in the right order. So that's why it's key to speak to the experts in the field first, understand what's required and the process. You can also borrow. You can also buy property in SMSF from other people, so you can buy tenants in common Tear. Lenders will actually allow two SMSFs to borrow to buy the same property.
Speaker 1:Okay, interesting.
Speaker 3:Also buy property through a unit trust, which is then owned by the SMSF. There's multiple ways and they all depend on the client's needs and what's best for them.
Speaker 1:Yeah, maybe a question for you, daniel, just thinking about, like, the borrowing to buy property in your SMSF. But are there any specific things that lenders look at when you're trying to look at your borrowing capacity for an SMSF? Because it's obviously not as simple as here's my income, here's my expenses. It's a bit different, right?
Speaker 2:Well, first of all, they look at it as its own standalone asset.
Speaker 2:So they look at the contributions that you'll be making towards the property and also what the property will be generating, because it is for investment purposes only. That's why you create this One of the key things about when you're buying something obviously you need your strategy and you need to have your purpose. You can't have a construction loan in your self-managed super fund. You can't have a construction loan in your self-managed super fund. You can't just go buy, um any property that just you want to buy. There are certain properties that you need to buy for your self-managed super fund, um, so that's one key thing to take away from that. But also, um, they're not going to look at all your like some people don't put in their personal name, it's an entity. So they're not going to look at all your credit cards or your car loans, your seven properties that you have, or your own property that you have.
Speaker 2:It's its own standalone asset. They assess the income and the contributions made to that property and then they give you the outcome from there and the banks will give you kind of value of a round figure. You can borrow this much. You need this much money. To complete, you take it from there. You'll still pay stamp duty. You'll still pay your normal um fees and charges that you want as a normal purchase. Yeah, it's just the end. That standalone entity is its own income-producing asset.
Speaker 1:Okay, and if they were to, I guess then borrow to buy their own house separate to the SMSF, would the loan that they have against the SMSF impact that, or is it treated completely separate?
Speaker 2:Completely separate, separate entity, separate people. So you just look at it as if me and you're buying a house. Yeah, I'd say you would look at buying a self-managed super fund so I have my own personal um property. Yeah, buying so much super fund, two separate people. That's exactly what a self-management fund loan and that's what the finance people look at that way as well.
Speaker 1:Okay, interesting, it's pretty cool. It's a nice little um, nice little trick.
Speaker 2:If you know why you're doing it. Yeah, it's quite. It can be rewarding again, like people may open up for the wrong reasons. Again, someone, um, who's only got 150 or 180k may not understand that a little bit more yeah um, one of the key questions that I get a lot is I have five, six, seven supers all around the place. I don't have a problem. Ever put more into the self-managed super fund. Uh, do you get that a lot, george?
Speaker 3:yeah, we do, we do um and and it's not that hard to do. But you're just going to be aware of the consequences of doing that, especially if you've got insurance held in those super funds. A lot of people don't realise that if you do roll out of an industry retail fund and there's insurance attached to it, once you roll that money away from that super fund the insurance will cease. So we're always saying to clients make sure you're speaking to your advisors, especially around insurance, to make sure whether you keep that you know insurance going. And that might be by leaving a small amount of money in that super fund to keep paying for it or, if it's not worth keeping, you've got too many insurances all over the place, consolidating them into one.
Speaker 1:Okay, interesting. Another one for you. While we're on property and SMSF from your perspective, is there a specific property type or property types that would be more suited to invest in for SMSF?
Speaker 2:Personally, I don't have a preference. What I would like, what I advise people who are in that retirement phase, is try and get something that's close to connected suburbs. I like that. In terms of property type, banks have their restrictions if it's an apartment, townhouse or house. Again, your budget. It all kind of relies on your budget. We've seen how the property market's grown. So if it's up to me and I'm advising someone for their retirement, I'm going to give the same approach as we do common sense investing. If you're only a connected suburb, your next door willies binding state school. It's going to work regardless. And if you have enough budget to buy property, a great you always have property b ready, just in case you don't.
Speaker 2:You can't afford property a, yeah, but either or you can't really complain.
Speaker 1:As long as it's what it matches your goals for your retirement, then you're fine I was about to say so pretty much the same as any property investment, as long as it's purchased to achieve a specific goal?
Speaker 1:yeah, then it. Yeah, okay, perfect, no problem. Um one question, actually that I've been asked a lot um and I actually don't know the answer and I don't know which one of you will have the answer um, but I've heard a lot, especially with house and land contracts, that, um, you need a one-part contract for smsf. Can either of you tell me why and what that means really?
Speaker 3:actually, if you're borrowing to buy a property in a self-made super fund, um, the rules around borrowing um are restricted to one asset per loan. In summary, so what that means is that if you're going to borrow, say, 500 000, to buy an off the plan purchase, there has to be a contract in place that is essentially saying there's the land portion and there's the build portion. That is acceptable. But also, if there is, for example, that was for an apartment and there was a car park attached to the apartment, there was a car park attached to the apartment the actuarial will accept that that is also okay because that car park is attached to that apartment. Yeah, so what that means is you can't borrow from the bank to build a house and then borrow again to build a townhouse at the back of that house.
Speaker 1:Okay, so as long as it's for the one asset, then One asset, one loan, one contract Makes sense.
Speaker 3:That makes sense. That's a good explanation.
Speaker 1:Yeah, are there any other benefits to it being a one-part contract? Is it, you know, a smoother process or anything like that?
Speaker 2:Well, the most common thing is the buyer is safe because they're only paying when the actual asset's completed. So they don't have to worry about it. So their super is there for their time, and so you want no risk, as little risks as possible when you're buying your super yeah.
Speaker 2:So when you are purchasing and off the planet purchase and you're doing construction, obviously the bank values that looks that I make sure it's all okay. There's your parameters and your restrictions around that. If something that's one part or exists, it's completed, your sub-marital fund or your finance company will not release the money till they can see the asset is in lockup stage and you can get the keys and the tenant can move in. So it's quite, it's quite safe. I would say just same feedback on that, george it's pretty.
Speaker 3:Yeah it's probably important to mention, though as well with smsf. So let's say, the smsf bought a block of land. It cannot borrow to build on the block of land. Um, it can buy a block of land and then use money that it has to build a house on there. So for anyone looking to buy an off the plan purchase, um, like a one contract, like you mentioned before. So for a new home it has to be done that way. They have to buy it as a package.
Speaker 1:They can't borrow to buy the land and then borrow to build okay, so otherwise they'd have to have enough cash in their smsf to fund the build itself.
Speaker 3:Correct yeah.
Speaker 1:Okay, all right, makes sense. Also probably a question for you, daniel, but how can people make the most of, I guess, investing in property with their SMSF, and what can they do over time to make sure it's performing at its best? Yeah, sure.
Speaker 2:So I will take the long-term game here. So I won't talk too much about like the area, because obviously the area is key. So we all know that. I guess it's more about when you're having your strategy, that it's there for your retirement. You want to kind of be at that point where you're at your retirement you can sell it and then that will be giving you your income or income needed to, kind of for the next 10, 20, 30 years of your life or in the retirement phase.
Speaker 2:So I would say strongly, when you are considering something that's going to be a long-term hold, you don't want maintenance, you don't want headaches, you don't want all this little kind of stuff correct. So as new, or as new, as close as possible as you can give you that peace of mind, the warranties, the newer properties it's easy to rent out tenants, all that kind of stuff. So yeah, my one um kind of key thing is to try and make as new as possible makes it so much easier for you as a long-term hold. And by that time think about it in 20 years time because it's a retirement thing. When you are selling that, compared to selling something that's a bit older, you're going to get a better, it's going to be easier to sell. Hopefully you make a bit more money. Someone can buy that a quicker. So all the benefits to that kind of line up to your strategy. So I would kind of say as new as possible is the key there.
Speaker 1:Okay, interesting, while we're kind of on, I guess, the benefits, george, you spoke a little earlier about the tax benefits. Obviously, going from normal income is taxed around like that 40, 46-ish mark percent for normal income is taxed around like that 40, 46-ish mark percent for normal income tax you mentioned, I think SMSF is taxed at 15 and then 10% at different stages. After you hold it for a certain period of time and then if you're selling in the retirement phase you'll pay no capital gains as long as you're under the $1.9 million cap. Are there any other tax benefits that come with buying new property that transfer also into SMSF, like depreciation or anything like that?
Speaker 3:Any expense really that you can claim against the property and, as you know, new properties tend to have a higher depreciation expense than something that's really old. Yeah, okay, I thought you were going to say you have a higher depreciation expense than something that's really old.
Speaker 1:Yeah, okay.
Speaker 2:I thought you were going to say you have a little discount code to pay less tax.
Speaker 1:I was waiting for that. I'm sure we all wish that we have a discount code to pay less tax. Okay, well, that's good. Well, I'm not well-educated on the SMSF space, so that's interesting to me to know that all of the normal investment tax benefits, I suppose, also roll into SMSF, as well as the added ones that you get only in your SMSF. Yeah, 100%, and it is, I think we overcomplicate it.
Speaker 2:Sometimes You're buying an asset for your retirement. You're buying it for your self-managed super fund. For a clear-cut purpose, it's like buying a normal property. Just the same values apply, the same rules apply, the same common sense investing applies. I would say it's just the type of asset you purchase and the way you're purchasing. It is the only thing that really changes. Yeah, um, and obviously the regulations and compliance that goes around it yeah so I would say, just make again the team.
Speaker 2:The team will tell you how to do what you can do and if you look online, there's gonna be research that may make sense, may not make sense. And you try to juggle what's right, what's not right in my stuff, like I'm I'm seeing sms everywhere, yeah so I asked you, george the trends? Um, I feel like everyone nowadays is just wanting to open up and it's so much super fun without the actual purpose of why they're opening it up and they're leaving it there, they send up the supers and they're leaving it there.
Speaker 2:It rolled over for the next 6-12 months and not doing anything with it because they don't know what to do next yeah, yeah, definitely.
Speaker 1:I was actually looking at some stats and I'm gonna read them because I can't remember them. Just on that you said a lot of people are opening smsfs more and more. Um, currently I just lost my document um, so currently there is a total estimated asset in smsf of around 932 billion dollars. Um, which is insane, but I'm sure that it would be probably 10 times that in normal traditional super funds. So it's increasing, definitely, and going up year on year, but a lot of people are unaware that it's possible to do this.
Speaker 2:Yeah.
Speaker 1:Yeah, so interesting one. Have you got a client story, george, that you can share, where someone has opened an SMSF and maybe invested in property?
Speaker 3:So we had a client who was renting an office and he was fed up with his landlord not fixing things, putting up for rent uh, not allowing him to make small changes to you know color, paint the walls or put things up and around, and he got fed up with it. So he ended up setting up an smsf up and buying an office in the sms himself. So it was his own asset, he was paying off his own asset. He was able to do whatever he wanted to that property without the hassle of a landlord trying to control it, and that is something that helps people. And he couldn't have done it personally because he had too much money tied up. So having an SMSF and superannuation balances was enough to allow him to get the loan that allowed him to do this.
Speaker 1:Yeah, that's interesting. Obviously that was a commercial property because I know with residential, obviously if you buy a property with your SMSF, you cannot live in that property as well. Are the rules different for commercial spaces and obviously renting from a business entity rather than a personal?
Speaker 3:So if you I'll give you a bit of background on this If you own a residential property, you can sell it to your smsf. Yeah, if you own a commercial property, you can sell it to your smsf. Um, and the idea behind that is to stop people from selling their holiday homes or their own home to an smsf and then living in it and paying themselves rent. So you can buy any property residential, as long as it's not from a related party, but commercial properties on the other end of that, which you can do. So the key is, if you do buy a residential property, you don't rent it out to related parties. You're not allowed to do that. So you can't buy something and rent it out to your brother or sister or auntie, but you can rent it out to your friend because it's regarded as a related party.
Speaker 3:If you did buy residential property and say it was down by the beach and you wanted to go stay there for a weekend, you're actually not allowed to do that because you can't have a present day entitlement to superannuation assets. You can, however, if you wanted to, and I've had some clients do this. They want to live at a certain beach area. They can't afford to buy that property right now. They've decided that their strategy is that I'm going to use my super to buy the house that I want to live in when I'm retired, and so they buy their super, they rent it out. If they're borrowing, they pay that mortgage off over the years. Let's say they come to retirement age, they're paid off the debt. They can then withdraw that property out of the smsf and then live in it ah, I guess.
Speaker 1:So in like a different strategy. So instead of selling that property and putting the money back in the smsf, they withdrew it and kind of took that asset back into their personal name, so then they were able to live in it.
Speaker 3:That's pretty cool, interesting, that's a lot of things you can do with super too many things for the amount of time that we've got to discuss today yeah that's why it's really important to actually understand what the client's goals are and what they want, and to educate them on what's allowed so they can actually think about these options and assess it with their advisors to make the right choice.
Speaker 1:That's definitely a really good one. I've never heard of that, have you, daniel?
Speaker 2:well, not like that, but I have a similar client story, um success story. So I had um middle-aged couple um. They've been renting their whole life they tried to buy property.
Speaker 2:They wasted they. They tried to buy something, didn't work out the way they lost the cash. Stuff happened. And when I was speaking to him, this was five years ago almost now four and a half five years ago and I'll never forget, um, the conversation that took place. Um, they were telling, they were telling me that they would love the opportunity to buy property, but they have no savings and I know the property market's going crazy at the moment. Yeah, so what we did? We sat down like, okay, so what's the key plan? What do you guys want to do in the future? They were so worried that they're going to have to keep working until they're 70, 75. And maybe after that. There was no kind of plan. Next, went to the advisor. I referred him to one of our referral partners who can kind of help out there, gave him a plan to obviously open up a self-managed super fund, came back to me saying daniel, it looks like that we can't purchase in our self-managed fund that's where our money is again.
Speaker 2:Tried, they have no, no savings, nothing like that. But they had the money in their self-managed super fund, or so their super, normal super built up they did. The rollover took about two, two and a half months. It's a bit of a longer process. Not too sure why, maybe multiple supers. Um, then we ended up getting my property in mango hill. This was four and a half, five years ago, I'll never forget it was 429 or 439 around that price. Yeah, just recently, a year ago. They just want to get a same much worth revalue it. Um, it came up at 960k wow, so like in how long?
Speaker 2:in what four and a half five years um then now their their retirement is, if they and they still got another 12 years left of work minimum before they hit that retirement gap retirement age, sorry, they can sell that and they've already doubled their money so the assets doubled, sorry, so yeah they can. They can retire a bit more comfortable they have a plan now, so they feel a bit more at ease.
Speaker 2:so people listening who may feel like it's impossible to get into the market, you may have another plan there if it's suitable and you know what your strategy is. So I think it's something to consider and that story is etched in my brain forever because even I went to my own parents and I said to them okay, so you guys probably have the same kind of concept.
Speaker 2:You guys can look at purchasing your super fund and have a retirement plan. Don't rely on anyone else when you get to that age. So no, it worked out very well for them. Um, but yeah, there's key benefits to it if you can understand what it is you want and I'm going to keep telling everyone that, like we, if you know what you want and your advisor kind of gives you the tick and the go-ahead, I feel like it's a great asset to get into and a great strategy to get into.
Speaker 1:Definitely, I was going to ask you daniel, what your top tips would be for people strategy to get into. Definitely, I was going to ask you, daniel, what your top tips would be for people looking to get into SMSF and investing in property but you jumped me. All right, guys. Well, I think we've pretty much covered everything we can in today's episode. Any final thoughts, any tips, tricks, any other client stories you want to share? George?
Speaker 3:No, I think the key is to make sure you're speaking to your advisors and really understanding what SMSFs are. Is it right for you getting the right advice and guidance and then trying to do something without the help of people that know what they're doing, and then either buying the wrong property or making mistakes and not doing it the right way with the setup, and then you've got to fix structures?
Speaker 2:Yeah, right, thank you, george.
Speaker 3:Thank you very much.
Speaker 1:Thank you very much. All right, bye guys.
Speaker 2:See you, yes.
Speaker 1:This is intended for general informational purposes only and should not be considered financial advice. For specific guidance on your situation, consulting a qualified financial professional is essential.
