Self Managed Superannuation Funds and Residential Investment Properties

DO NOT MIX

The strategy most new clients we see, involving the purchase of a residential investment property with their Superannuation Fund is flawed.

Your Superannuation is capital that is to be invested for your whole life. The aim of this capital is to replace your income from work or business – when work becomes optional or just not possible.

With income being the primary objective, the investments that make up your Superannuation Fund need to have the following characteristics:

they need to provide high income and good cash flow
they need to be liquid, ie, the ability to turn any portion into cash in a very short time frame, in case you want a lump sum to:
- update a car
- take a holiday
- help out the kids
- pay for medical treatment

Residential Property does not provide High Income OR Liquidity.

Further, most people own property personally and including more in your Super Fund becomes a classic case of having all your eggs in one basket.

Look at Rent Yields

The following are Rent Yields from Residential Property – which will be your income. Combined Capital cities are 3.3% per annum before any expenses. In reality this is less than most term deposits will offer.

Less Expenses of 1% = 2.1% (SYDNEY) = 2.3% (COMBINED CAPITALS)

Negative Gearing is also Wasted in Superannuation Funds

With a Super Fund tax rate of only 15%, a negatively geared property offers limited tax advantages.

Personally, the lowest marginal tax rate above the tax free threshold is 19%, with the average worker paying 37% on each dollar income tax plus 2% medicare levy.

The Alternatives

Consider other asset classes that provide higher income with liquidity. For example, Industrial Australian Shares can provide these qualities to your Portfolio.

Jason Birch is a Representative of Skybridge Portfolios Pty Ltd (ABN 47 149 093 069) trading as Skybridge Financial. Skybridge Portfolios Pty Ltd is a wholly owned company of Skybridge Financial Pty Ltd (A.C.N 124398385) and provides financial services through its Australian Financial Services License (AFSL No 407092). This information is of a general nature only and does not take into account your objectives, financial situation or needs. Before making any decisions you need to obtain personal advice from your advisor.