We talk a lot about self-managed super funds (SMSFs) and with good reason—they offer everyday hardworking Australians the opportunity to enter the property market. Whether you’re looking to buy a home to live in, or an investment property to secure your financial future, unlocking your super via an SMSF can be the way to make it happen.
However, unless you have an in-depth knowledge of superannuation and/or investing, you probably haven’t heard too much about SMSFs, other than the warnings that they are complicated and even risky to manage.
The truth is, they can be risky if you dive in without the knowledge and expertise behind you to make it work. But the flip side is, that when you do partner with the right team, and you invest your super in property, it can be simple. It can also carry a lower risk than a typical industry or retail super fund which is heavily reliant on the more volatile sharemarket.
Most people we talk to have a few reservations about SMSFs to begin with, largely because they don’t understand how they work, and are unsure about the risks and benefits. So in this article we’ve put together an overview, to help you better understand this powerful investment tool.
How an SMSF works
A self-managed super fund differs from an industry or retail fund in that it is a private fund that you manage for yourself. You can set up an SMSF alone, or with up to three other members, who are trusted friends or family. Most funds have two or more members, and each member is a trustee who is responsible for the management of the fund, either as individuals, or as corporate trustees.
Because the SMSF is run entirely for your benefit, you get to decide exactly where your super funds are invested—and with this level of control comes an extra responsibility. It’s up to you to make sure all of the legal requirements are satisfied in relation to insurance, reporting, audits and investment strategy. If you have the right level of knowledge and expertise you can choose to do this independently, or otherwise, you can partner with a team of experts who will manage each aspect for you.
Risks of an SMSF
Like every investment strategy, an SMSF does come with risks, and understanding and mitigating them is key to your success. Below are some important risks to be aware of:
- As a trustee, you are personally liable for any decisions made in relation to the fund, even those made by a professional acting on your behalf or another member. Make sure you only partner with those you trust.
- If your super funds are lost through fraud you are unable to access the same special compensation schemes and complaints channels as those with an industry or retail super fund.
- You have a responsibility to keep the fund operating, even if your circumstances change and you switch jobs or find yourself out of work.
- If there is a relationship breakdown with other fund members, it can be difficult to manage the fund optimally.
Benefits of an SMSF
There are a great many benefits to switching to an SMSF, largely due to the structure of the fund and the flexibility in choosing your investment assets. Here’s a summary of the key benefits:
- You have greater control over how your super funds are invested. This allows you to choose to invest directly in property, so you can secure a deposit to buy a home to live in, or kickstart your property portfolio.
- Because the fees in an SMSF are generally charged as a flat rate, once your balance reaches a certain amount, you’ll pay less fees than a traditional retail or industry fund, where the fees are calculated as a percentage of your balance.
- When you invest in property via your SMSF, you may also be eligible for tax advantages due to depreciation, resulting in capital gains.
- Another advantage of an SMSF fund is the greater flexibility around estate planning and asset protection.
So is an SMSF the right option for you?
Switching to an SMSF can be the ideal choice for those who are looking for greater control over their investments, or for those seeking a way to enter the property market. Through our Home Buyer Accelerator and Property Portfolio Accelerator we are helping hardworking Australians unlock their super to invest in property to secure their financial future. If you’d like to find out if this strategy could work for you, get in touch with our team on 07 3011 6260 or take the quiz to see if you qualify.
