I can't imagine in what world the sort of leverage mentioned would be a good idea for anyone except advisors and banks.
That leverage sounds pretty typical or even conservative. Isn't it pretty standard to borrow 80 or 90 percent for investment property ? 90% loan ratio means if the property was overpriced by just 10% the "investment" is wiped out.
It really depends on where you buy and your knowledge of the market. My SMSF is invested in property and i am more than happy with the gains that have been made over the last few years and more-so the gains to be made over the next 10
The leverage is what gets you in the end, but it's the inflated purchase price at the beginning that sets the investment up to be a dud. Loading a 20% commission on at the front end means you're spending the first 4 or 5 years just to get back to par (assuming a return of 4-5% p.a.) and you get way more bang-for-buck on repayments in the first 5 years than in the last 5.
I wrote this on another forum but as it same topic i'll cut and paste. Any investor whether SMSF or personal must Be alert - that means do your due diligence on anything you spend your hard earned money on. If you will take recommendations either in a SMSF or outside from an advisor, make sure you check their track record of success. What annoys me, is people who do not disclose commissions, if you are not paying an advisor a set fee ask them how they get paid? The issues are not isolated to SMSF, its outside of super as well. The thing abt SMSF is that it is regulated, if an advisor 'recommends' property in a SMSF they need to be licensed (AFSL) or an auth rep of a license holder, if they are not then they are breaking the law and can face a penalty of $30k+ or 2 years imprisonment. Funnily enough the ASIC fine actually equates to a standard commission these people are getting on a sale of property, then add the finance commissions and you will see why so many are entering the SMSF arena. Everyday Australians are getting spruiked into buying property outside of super problem is - its unregulated....a free for all. There are good financial planners - try to have a friend recommend a planner to talk to - if they immediately offer a free trip to Queensland - walk away! I'm in the SMSF game, when someone speaks to us, immediately we educate the client and decide together whether a SMSF is right for you. With the property equation, this discussion can take up to 45 minutes, drawing structures etc.....if its not right and you don't understand the benefits and risks of SMSF, forget about it. Education is key, hence be alert. Hope that helps Ivan
Yeah.....exactly....what a joke. All I did was make a simple inquiry about a property development, which was by the way a NRAS scheme as it turned out, and on inspection had to flash my id. I now treat the occasional cold caller as a sporting contest, especially when they bring up the subject of super.
Hi Jules. As someone who has been investing my super in commercial properties for close to 20 years it amuses me the rubbish that is published in the AFR, fairfax and Murdoch press about the dangers and abuses of investing super money through an SMSF. First some facts from the ATO; about 54 Billion or about 12.1% of super in SMSF's is invested in commercial REAL ESTATE, around 49,000 properties. about 17 Billion or about 3.6% of SMSF money is invested in 15,000 REAL ESTATE residential properties. Listed shares account for 28.6% of SMSF money invested unlisted shares account for 1.2% of SMSF money invested Cash & Term deposits is 32.5% of SMSF money invested Listed Trusts account for 3.5% of SMSF money invested Unlisted Trusts make 8.5% of SMSF money invested other managed investments 4.3% of SMSF money invested All other assets make 5.7% of SMSF money invested When we started you were only allowed to invest 40% of your super in property and you were not allowed to borrow We found a legal way to use 100% of our SMSF funds and borrowed the other 80% to purchase two commercial buildings. The structure was a unit trust also known as a Trevisan Trust. All through the nineties the AFR carried on about how SMSF's were rorting the system sound familiar ? Meanwhile the Retail Super and the Industry super funds were bending their members over and driving it home while enriching the directors and their mates in the insurance and banking industries. For 15 years we fought with a succession of accountants and so called advisers who could not see the forest for the trees. The whole SMSF creation was an accident and arose from small businesses that provided super for their members and were known as excluded funds. Australia has the only self managed superannuation structure in the world where the trustees, Corporate/individuals who manage their funds are the directors/beneficiaries The big banks and Insurance companies hate us and have been spreading lies for decades. I submitted a 35-40 page Submission to the Cooper review back in 2009 and what I alluded to in my submission was what the review found. The vested interests are lying thieving b@stards and they are still at it aided and abetted by the financial press. I am sure there are some financial planners out there that have their clients interest at heart ....but I can't help sneering when I hear the nonsense that you need a financial planner to hold your hand and charge you buckets to purchase a property in super,,,, pppllleeeaaassseee Kind Regards non recourse
My FIL was just encouraged by a financial planner / property spruiker to borrow 100% through his SMSF for a property. I couldn't believe it! From memory the plan was for the SMSF to "borrow" 20-30% of the equity from his PPOR and borrow the rest through a bank. They also had the usual rent guarantee for X amount of years....
Just because it isn't dangerous for you doesn't mean it isn't dangerous. You clearly know what you're on about, to the point where you've sacked a series of professional advisers who were either too ignorant or too lazy to work with the complex and obscure structure you wanted to use. Good for you. As you keep pointing out, being average being average makes you a loser over the long run and as sammysilver likes to point out, half of the population are below average. Borrowing 95% of a property's value is risky even if you're extremely knowledgeable and experienced and most people aren't going to hedge their real estate holdings with precious metals like you do. If real estate values plunge, you might take a hit but they'll have their nest egg wiped out. Super's prime purpose isn't to make you rich, it's to provide for your retirement. If the level of risk being taken on jeopardizes people's ability to retire with less money than they'd otherwise have, the risk is too high.
Everyone has been sold 'you need a million dollars' to retire into your own paid off house. (which is probably right at the rate they steal it from you). It's all to do with what expectations you have for your retirement isnt' it?
When you work it out a million is about right. You want to be able to live off the income rather than eat into the capital every year to live. At 6% a million will give you $60,000 a year. Not a lot if you want to go on a holiday or do something other than just sit around the house.
Hi Big A.D; The problem is you cannot legislate for stupidity and greed and unfortunately that is where SMSF's are headed with the its not fair fairies and regulators resulting in the destruction of the best superannuation system in the world. The word SELF is for me myself and I and MANAGE is something you do. Why would you go into an SMSF unless you want to steer your good ship fortune? It doesn't matter how much you borrow what matters is YOU understand the maths behind the risk and you MANAGE that risk and have plan A, plan B, Plan C and a black swan plan. That doesn't mean you don't take advice. What it means is you drive the investment. I would like to see the SMSF system split with an opt out option where if you want to be a sophisticated investor you agree you will never be entitled to go with your empty hat to the public purse. For the dummies who want their hand held make them contribute to a sinking fund so they all contribute to pay for the greedy fiscal pygmies who blow it on a get rich quick scam :lol: I do believe that 60% of the population over a lifetime could be off the government pension/independent super annuants and that is what part of my submission to the Cooper review was about. Rather than stealing from the rich encouraging 60% of the population to be fiscally competent ( not necessarily literate for the bulk of them) would mean our tax base could support the 40% who are incapable of managing their affairs and give them a dignified retirement income all be it limited. Kind Regards non recourse
Just a quick question none recourse - do you fell lucky? http://www.youtube.com/watch?v=I530sPVQSc8 that is, back 20 years ago did you actually truly and I mean truly believe that your property investment would never take a dive, even a dip? in those 20 years I know it's history and a hypothetical but I do applaud you however, back about 18 years ago did you honestly think "yep, I'm 100% right this is the way forward and property would never drop" or did you like others just roll the dice and it simply came up trumps :/ This has been the longest bull run in Australian property history. I know the road to riches starts with the first step but if you were to start right now, today 2014 knowing that there was 20 years behind you that property has risen up hill, would you invest in property? I mean take step back from yourself and all the financial wealth you have honestly earned over those past 20 years...if you were in your early 20's and was starting from scratch right now? at $800K standard home - would you take that leap of faith? do you feel lucky punk? It's the $64000 question for most of us holding back from investing in property right now and who are above 40 years of age. Yes we certainly were wrong, and in fact I cringe that point daily that I didn't invest back when a stock standard 3 bedroom was about $270K but bloody hell :/ - what crystal ball could have imagined 20 years of growth? I have many friends that honestly have no clue about investing and know more about who will be playing for the Bunnies next season however they purchased back then (sheer bloody luck) and now they think they are financial gurus for doing so but the real point was they just fluked it - and comment back to them "good luck to you' begrudgingly of course
100% agree. But you are wasting your time trying to convince the non-participants. My guess is the negative slant towards the unknown is self-justification for opportunity loss. The above quote would apply to myself if I substituted a couple of words: As someone who has been investing my super in commercial properties trading paper for close to 20 years it amuses me the rubbish that is published in the AFR, fairfax and Murdoch press about the dangers and abuses of investing super money through an SMSF leveraged trading. It doesn't matter how much you borrow what matters is YOU understand the maths behind the risk and you MANAGE that risk and have plan A, plan B, Plan C and a black swan plan. That doesn't mean you don't take advice. What it means is you drive the investment
Well, I agree you can't write laws to stop people being stupid, but you can write laws to reduce the instances of people doing stupid things. Many people, for example, do not understand mathematics. That doesn't mean they should read more self help books or be encouraged to "drive the investment", it means they're innumerate and will likely remain so for the rest of their lives. If you chopped the total off the bottom of their Coles receipt, they wouldn't be able to add up the items and figure out how much they just spent on their weekly grocery shopping. If you don't believe me, ask a bunch of random people if there's any difference between making a mortgage payment weekly or making it monthly. Then ask them why or why not. Many of them are also very good at doing other things and they get a chunk of money put aside for super in addition to their paycheque. And then they meet some property spruiker with no qualifications in advising people on financial matters who'll sell them the dream of a life of leisure in retirement from all the profits they'll make by investing in real estate through a SMSF. I really don't see how you can look at the snapshot in the first post where only 1% of the advice received on borrowing through SMSFs could objectively labeled as "good" without seeing at least the potential for things to go horribly wrong for a lot of people. Since we're not going to let people starve on the street if they lose all their super in a dud property deal, the least we can do is hold super investments to a higher standard, particularly in relation to borrowings and licensing for people who want to call themselves advisers.
A large portion of the population don't even understand how their home loan works do you really expect them to put any effort into understanding an SMSF or paper trading systems ? I even had an argument with a bank loan officer who recommended paying fortnightly instead of monthly. I told her the frequency doesn't make any difference. If you pay half your monthly payment fortnightly you end up paying more annually. Increasing the monthly payment so the annual total was the same would result in the same outcome. She just couldn't comprehend such a concept. I agree with NR - those who don't understand what they are doing shouldn't be allowed to have an SMSF.
And who decides that trew? Some regulatory authority, some committee, some authorised body? Anyone should be entitled to do as they please with their own funds. Edit to add: and compulsory superannuation is also a croc.
