Questions to Ask Yourself Before Considering an SMSF Property Investment


I have had a lot of enquiries lately for advice on SMSF loans for property investment and we have run regular educational seminars on the issue for clients and the public. My main observation from the enquiries I have received is that people are jumping on the band wagon without checking if they really need to take on the additional risk and costs involved. Here are some simple questions to consider before starting the process.

  1. Are you ready to seek advice, take advice and follow that advice? This is not an area to mess around with and the penalties of getting it wrong are expensive and time-consuming so unless you are willing to learn the rules, follow the rules and do the necessary paperwork as well as pay the initial set up costs then STOP NOW! Look elsewhere for a get rich quick scheme.
  2. Are you only considering this option because you have run out of equity to fund property purchases in your own name or are you genuinely interested in using property as a part of a diversified strategy to meet your retirement income needs. Using superannuation funds means the focus has to be on providing for your retirement and you need to ensure that is the primary intent of the investment.

  3. Would the prospective property investment stand up on its own to a proper assessment of its potential without the tax benefits allowable in this superannuation strategy. If an investment does not stack up under normal circumstances then do you really want to rely on future governments keeping their fingers out of the Superannuation pie to meet your retirement needs!

  4. If you have attended a seminar where you were actually offered a property and if so do you know what commission/fee/marketing allowance the promoter is getting as part of the deal? If you pay $6-$10K to set up the SMSF structure, $10-$20K Stamp Duty and the promoter gets say$17,500 which is 5% on a $350K property then you will need the property to grow by at least 10%-15% before you break even. Currently ANZ in its July Australian Property Housing Chartbook compiled by economists David Cannington, Paul Braddick and Ivan Colhoun.  indicate a 4-5% growth rate would be the most expected over the coming few years.

  5. Are you prepared to do the hard slog yourself and research a decent deal in an area you understand and to ensure you are paying a fair price for a property with rental and growth potential over the longer term.

Property is a great part of a long-term savings portfolio but like every investment you have to do the ground work and the current hype in this area has attracted the spruikers who promise much but deliver little long-term. Seek out the professionals who have an established reputation in the property sector and always do simple things like doing a Google search on  the person or business and the word “scam” or “complaint”.

I hope these thoughts  have been helpful and please take the time to comment if you know of others questions investors should ask as I know this is not an exhaustive list.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

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This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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10 Comments

  1. this is a very decent blog you have here

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  2. SMSF property Loan provides SMSFs the flexibility to borrow in order to purchase or refinance residential investment property, giving direct access to real property assets. Thanks for sharing such a informative post.

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  3. Liam, Good post – you have raised some vital points that SMSF investors must consider. As you and Kris have pointed out there are a lot of people walking into SMSFs without the necessary knowledge, in fact in our National Savings & Debt Barometer we found only 10% of people who felt they had a good knowledge of SMSFs. Alarming given the cost of getting things wrong but possibly highlights the desperation of some to improve their retirement savings.

    SMSF’s are of course a hot topic and the favourable interest rates make the proposition of investing into property all the more attractive.

    Whilst we are not in a position to provide people advice we endeavour to inform people of the facts. We recently put together an article which compliments your post and may be of interest: http://media.rabodirect.com.au/smsf-advice/investing-your-smsf-in-property-2/

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  4. Wayne all good points and I think most advisers have seen people and sometimes marriages devastated as a result of a large investment gone wrong. The victims of Henry Kaye, Storm, Westpoint, Trio, Banksia and the latest property scam revealed in Queensland. People get totally stressed and relationships suffer especially when over exposed to one single asset that fails or one sector.

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  5. I should also add that most consumers (and, sadly, even some advisers) would seem to believe that a property, is a property, is a property. In other words, just buy a ‘good one’ and you’ll be fine.

    This is also the premise on which the said property floggers operate, eg “We’ve got these ‘great properties’ for you and” surprise, surprise, “are ideally suited to your and your situation”. Of course, nothing further could be from the truth. They’re telling anyone with a pair of ears and a heartbeat that smsf’s are the best thing since sliced bread and virtually insinuating that you’re almost crazy not to have one. It would be laughable if it weren’t so deadly serious.

    And while I use the word ‘deadly’ rather advisedly I can also contemplate where the wrong and over-priced property(ies) could have a devastating effect on a retiree’s financial position and lifestyle, including health.

    The point I’m making is that every client is different so it’s impossible for a shortlist of properties (and then only new properties as well, because of the influencing commissions paid) to perfectly suit every client. It’s crude and defies logic and yet it’s accepted by many without question.

    The options and opportunities in property selection are wide and deep. New v established. House v attached. Yield v capital gain. Regional v metro. Neat n complete v reno/development. Then there’s the client’s risk profile, capital/ asset base, investment experience, number of properties held and aimed for, available cashflow, ideal gearing level, borrowing capacity, available skills, years to retirement, etc, etc.

    Moreover, the client should be actively involved in the property selection as, after all, it is their money! All these factors and more need to be addressed before a property can be selected so unless the client is taken through such a deliberate and comprehensive process then their and/ or their adviser’s warning bells should be ringing loudly.

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  6. Hi Liame
    You’ve made some great points in a conversation that should be getting and receiving much wider air play so well done on contributing to it. I particularly like your questioning of whether people are just using smsf to invest (dabble?) in property, or whether they have a genuine interest in their retirement strategy. Of course, the two goals can be aligned but what we’re seeing from property promoters in their various guises is a quite different emphasis.

    I also support the comments on one-stop shops. In principle, they have the potential to work but the current reality is that there are a lot which have been formed for the wrong reasons – and for most consumers they would be hard to pick. I’m much more comfortable with a cohort of like-minded but separate professionals working in tandem to support the client’s common goal. This works because we work closely with many advisers in a variety of disciplines to deliver a coordinated outcome.

    This model ensures that true specialists produce the best outcomes for clients and also provides a self-checking mechanism you touched on.

    From a commercial point of view, sticking to your knitting also means you avoid potential conflicts with advisers in other streams so you have a greater opportunity to form alliances with a wider number of advisers.

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  7. Thank you for writing this article Liam.

    I agree with what you are saying, and I too endeavour to educate people to ensure they take all of the above into consideration and get appropriate advice.

    Something that I am seeing which is increasingly concerning are businesses receiving income from so many parts of a SMSF property purchase you need to question whether they are truly looking after the best interests of their clients.

    There are so many potential conflicts of interest with these deals. For example how could an investor ensure that someone who simultaneously is advising them to buy property via a SMSF, and just so happens to have the ‘perfect’ property to sell them (and generate a sizable commission for themselves along the way) is looking after the investors needs first?

    Investors need to be extremely wary of organisations who say they can do everything for them. My opinion is that these type of businesses have simply too many fingers in too many pies. Each part of the puzzle (including SMSF setup, insurances, investments, loans, ongoing advice) needs to be able to stand up and be appropriate when looked at in isolation.

    I know the above doesn’t apply to all situations, and there are many organisations that can legitimately bring together a group of professionals who can work together for the benefit of their clients, and I have no problem with people getting paid for the work they undertake.

    Investors need ask the persons they are dealing with is:
    “What is in it for you?” – and if you don’t get a straight answer, or if there is a lack of transparency, walk away, or at least seek independent advice to ensure it is not just someone flogging poor quality property investment dressed up as ‘advice’ or ‘wealth creation’.

    Point #4 above is definitely the most pertinent and makes the above real!

    Thanks Liam and apologies for getting on my soapbox.

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    • Kris

      Great response and you hit the nail on the head with some of the one-stop shops! I have to admit being a bit hesitant to raise that issue as I have seen a few (only 1-2) that are genuine and do a great job for people (No I am not part of any of these set-ups but am looking for ethical professionals and have been aproached by a few). What alarms me is the weight of biased marketing and phsycological techniques used by some of the operators making people feel that this is their last chance to make money.

      There are good people and bad people in every industry but you have to ask the right questions and know what’s in it for them. I spoke to a decent mortgage broker last week who just wanted to write mortgages for their clients and wanted a reputable adviser to work with. They do not take commssions from developers and were not looking for payments or offerring anything to me. They had no problem in me saying that I would refuse to do the strategy for some clients if not suited to it and they actually saw this as a bonus as their clients are repeat customers and they value their own reputation.

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