Investing in property can reward investors with capital growth and steady rental income. When done appropriately, property can be an effective asset to invest in either through a managed investment - listed property trust, managed fund, syndicate etc - or directly into a residential or commercial property.
Whether a direct investment into property is the right choice, comes down to individual circumstances and importantly, it needs to be treated as you would any investment - what are the real likely returns and what are the likely risks; are these returns sufficient to justify the risks being taken? Where - individually or with someone else or through a structure such as a SMSF or trust - you take out the investment is also important as complexity can influence both the overall returns and costs.
Investing in anything through a SMSF adds another dimension because of the special rules. Combine this with property where you have one, large, lumpy asset; add in a loan which needs to be serviced and could then result in this single, illiquid asset being worth more than the SMSF itself and potentially there are significant risks being taken which could hamper a stress free retirement.
We are able to assist you with both assessing the potential benefits of a property investment and also, where appropriate, recommend structures and strategies to help mitigate any risks and maximise the benefits which may be available. Contact us for an initial discussion.
You may also find the following checklist helpful:
- Why do I want to purchase a property? Does it and how does it fit into my long-term investment goals?
- Am I borrowing too much? Can I afford the loan repayments even during times when my cash flow is tight or the property is vacant?
- Am I buying at the right time? It is always better to buy in a market trough and sell at a market peak.
- Do I have a stable job? With stable or increasing cash flow?
- Have I got the right insurance cover? Consider landlord insurance, building insurance and income protection insurance. If buying through a SMSF, what insurances does the fund need to protect its investment – consider above plus life, TPD and even trauma.
- Where have I got my advice and information from? What conflicts of interest do they have – what drives their advice? Have I been pressured by anyone to buy an investment property or a particular house/property?
- Have I gone over my budget to make sure I can afford the purchase?
- Have I received independent advice about the different ways of holding the property – own name, as a trust, company or SMSF – and the advantages and disadvantages associated with each structure? Am I able to make a proper judgement about the “best way” to hold the property?
- If I am using a structure how am I going to fund the purchase – get money in to buy and service any borrowing?
- Have I considered estate planning? What happens if I die or become disabled and unable to look after myself? How is the property going to be transferred when I die?
- Have I left myself enough liquidity in cash and investments – unexpected expenses, vacancy, ongoing expenses over and above expenses associated with the property?