The idea of taking control of your super, selling those under performing shares that have been managed by a professional whocharges ridiculous fees regardless of the performance sounds appealing but be careful. Here are 5 reasons why buying property in your super might not be the right choice for you;
1. Small balance – If you super balance is less than $150,000, it could be dangerous purchasing a property in your super as you would need to use quite a large percentage of your assets as a deposit. This may leave you exposed as your entire super balance has now be moved from a diversified portfolio to potentially one asset.
2. Complexity – Purchasing a property outside of super is complex enough, let alone when you add another layer of rules. The structure and ongoing requirements can be quite complex and you need to make sure you understand them before you start the transaction. The cost of getting it wrong can outwiegh the potential benefits you may get from the purchase.
3. Knee jerk reaction – Although your super may have not been performing as well as you would have liked, find out the real reason first before you make the change. You could just be in the wrong funds for you or your asset allocation may be skewed because it hasn’t been managed properly. Once you make a property purchase, it is very hard to get out.
4. Costs – Buying a property through super can be expensive. You have setup costs of the SMSF, the Bare Trust, Solicitor Fees, Bank Fees, Advisor Fees and possibly even Buyer’s agents fees. There is nothing wrong with paying for professional advice, just make sure you are not paying too much and you are receiving quality advice.
5. Need Liquidity – If you are approaching retirement or you need access to funds then property may not be the right solution. If you want access to a property investment, you may be better served looking at listed investment vehicles that give you property exposure but you have the ability to sell instantly.
These objections can easily be overcome, you just need to sit down and plan your strategy and understand why you are making the transaction and how it fits into your overall strategy.