Why SMSF to Invest in Property

by | Mar 2, 2023

Recently, the government has proposed higher taxes on Superfunds and limitations on the amounts allowed to be held in a SMSF. In my opinion, this would be a serious long-term mistake, as it may discourage people from becoming self-sufficient and force them to rely on government pensions in retirement.

One benefit of an SMSF is the increased investment choices it provides, such as investing in individual properties directly. By using the property as collateral, one can instantly increase their asset base and improve their returns.

For example, let’s assume you have $300,000 in your SMSF and current laws permit borrowing up to $300,000 at a 50% LVR. This means you could invest $600,000, which could potentially yield higher returns than $300,000 alone. A 7% return on $600K is $42Kpa, and the internal rate of return on $300K is 14% pa. Essentially, you can double your returns by leveraging property in a safe way.

In simple terms, investing $600K instead of $300K can generate more money in the long run. Property has historically doubled in value every 10 years, with vacancy rates below 2%, making it a safe investment. The ability to leverage property provides a way to double returns safely.