Benefits of putting property in with your super fund

Many people often tell me that they are disappointed that their super fund has only a marginal amount invested in Property assets and that there is nothing they can do about it. Wrong! There is something you can do about it - it's called a Self Managed Super Fund (SMSF) and the number of these funds that are active in Australia is close to 330 (and growing). To set up one of these funds, you will usually need to seek specialist advice. There are start-up costs related to applying for a tax file number, accounting fees, bookkeeping fees, etc however the fees that you will save will more than compensate for these initial fees.

Now, with SMSF, you are in control of your own asset class allocation. Most SMSF's have approximately 30% of the funds tied up in property, however this varies depending on the individual. The most convincing reason to allocate more funds to property is that the property assets in a super fund are only subject to a 15% tax rate, whereas if you own the property outright, the gains you generate will be subject to your personal tax rate.

There are a couple of things to consider before initiating a change to an SMSF. Firstly, you will need approximately $200,000 before you can build a meaningful portfolio (this can be spilt between you and you spouse). Secondly, make sure that you seek legal and financial advice before you begin. There are a number of strict rules you need to adhere to and it is imperative that you do everything right the first time so you wont be up for any more costs.

Finally, ensure that you diversify your portfolio enough to stabilise yourself from a fall in any one market sector. As I mentioned, many SMSF's have up to 30% invested in property - anymore than this and you may be risking too much on the one sector. In the same way, try not to put all of that 30% into one property class (i.e. commercial). It's always best to spread it around a bit. That's what earnings diversification is all about!

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Published on May 5-th, 2007 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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