How to use superannuation to invest wisely in property.
With self-managed superannuation funds in Australia managing a war chest of more than $650 billion, it is important that they maximise investment returns through a diversified portfolio. The property should be part of the equation. Why? Australian property grew more than 7% a year during the decade to December 2014, clearly outperforming SMSFs and large retail super funds. So it makes sense for SMSFs to invest in direct property with their superannuation. Let’s consider two scenarios for a couple aged 45 with a combined income of $200,000 and a total of $180,000 in superannuation:
Scenario one: They invest in a traditional super fund, getting an average return of 6% per annum (a generous figure is given recent historical returns). They contribute the usual 9.5% of their income now and, as mandated by the government, this contribution rises to 12% of their income by 2025. By the age of 65, they should have accumulated $1,585,000 (about $950,000 in today’s dollar terms). If the super fund continues to return 6%, they will only have about $57,000 to live on each year between them.
Scenario two: They use some funds to invest in a $400,000 property and it records a 5% rate of growth (a conservative figure). The property gets a rent of $400 per week, less typical costs, and we allow for a 20% deposit plus costs totaling $105,000, leaving $75,000 in their normal super fund growing as above at 6%. After 20 years, the total combined net value of the property and super is $2,170,000 (or $1,300,000 in today’s dollar terms). This is $350,000 better than the superannuation fund-only model. Scenarios will differ from person to person, but seek advice and don’t ignore this opportunity.
This article was originally written by Richard Sheppard for the September 2016 edition of Peninsula Living.
