Paul Glossop: Hello guys, and welcome once again to Pure Property Investment one on one. I’m here again today with Tristan Scifo. Tristan, good to have you back in the studio. Tristan is a financial planner, also a wealth coach, does a lot of work with probably everyone from first time investors, people looking probably to set some goals, finances in place from the early stages, right through to retirement planning and everything in between, and that’s probably one part we want to discuss today, if that’s okay with yourself, mate.
With some of the changes to the May budget, one of the things we’re seeing come across the table for first home buyers is the first home super saver scheme, and there’s probably a little more detail yet, is there and we need an acronym for that, which I’m sure they do back in the backrooms of Canberra, but I’m hoping you might be able to share with our viewers a little bit about how that works and how that can potentially help first home buyers, and can they use that money potentially to invest as well, or is it a bit of a taboo topic?
Tristan Scifo: Great questions. Not taboo, it’s just that we don’t really have all the answers just yet, I’m sorry to say, but there’s some good news and some bad news. The good news is, if you didn’t know, Super, superannuation, is a great place to have money. Bigger picture, comparing it to having a property, sorry, comparing it to having a company, comparing it to having assets in your own name, comparing it even just to other trusts, it’s probably the best tax effective vehicle long term for holding any assets, so being able to, not just investing in your Super but being able to take money back out of your Super to use for a property is a really good idea, I think. It’s going to incentivize more people to save in Super and it will make it more feasible for first time investors to get their first property.
The bad news is I don’t believe it’s going to be usable for investment, so it’s only possible if you pull the money out to buy your own home, you going to have to live in it, and even if you intend for that to be an investment, there’s going to be a few boxes you’re going to have to tick off, and one of them is you’re definitely going to have to move into it as if it’s your own place, so it’s a bit of a win and a lose.
Paul Glossop: Yeah. It’s probably a word to the wise there a little bit about the fact that Super, as the vehicle it was intended on years and decades back is being utilized in a way that is quite useful , as a tax effective haven, giving younger people the ability to potentially look at sacrificing some of their wages, better their savings ability and probably set some good habits in place long term as well, which is another great opportunity for people even after the 2 years, where they can offset that cash, bring it back out, buy their home, maybe not from an investment perspective, but I think long term it’s going to allow people to get into the property market quicker whilst not having to pay as much income tax potentially along the way, so thanks for that insight, mate, and obviously there’s a lot of detail that goes below what we just talked about, top line, but if you do want to get in touch with Tristan to talk about how you might be planning to buy your own home in the next few years, months, weeks, whatever it looks like, and how you might be able to effectively use that new policy and maximize it for what it’s worth, his details are at the bottom of the screen.
Feel free to give Tristan and his team a buzz, and I’m sure he’d be happy to sit down and have a chat, and likewise, from outside, from a property specific perspective, we work obviously in the owner-occupied perspective and the investment property space, so feel free to give us a call if you have any property related questions and we’ll catch up with you. Cheers!
Paul Glossop: Good day guys and welcome to Pure Property Investment one on one. Today we’re joined by Anthony Pears. Anthony is a partner at Integra Financial Services. What we wanted to talk about today was again following on from the theme of Self Managed Super Fund investing, and property investing at the moment as well, is probably looking at the nature of where our credit policies lie and the different restrictions that are coming into place with APRA putting a little bit more pressure on the banks, certain lending types being restricted and probably the nature generally of lending right now is in really a strong state of flux and I think not having someone who really understands that detail on a week to week, month to month basis, you probably going to come unstuck if you’ve got plans laid out a couple of years ago. They’re probably going to be changed slightly when it comes down to borrowing.
So, Anthony if you don’t mind sharing with our viewers probably a little bit more about borrowing in Self Managed Super Funds and some of the changes in that environment at the moment.
Anthony Pears: Yeah sure. Thanks Paul. Whilst I don’t actually do any of the mortgage or finance broking myself, we do have that at Integra an in-house finance specialist, Jason Platt from Finance Connect. I’ve been speaking with Jason recently about this and for another client that we’re actually in the process of purchasing a property. Jason has found that the banks are tightening up very, very quickly and very hard. He had the deal that was done, went to present it to the client, the interest had moved 1% and that was only two weeks ago. So, it went from 5.8 up to 6.8% straight away. The banks are actually pushing very hard on the rates. They’re also pushing very hard on the restriction. So they’ve actually really reduced the LVR’s as well and also they’re requiring a greater cash pool to be held there as well for protection. The banks I think on one sense are trying to take the heat out of the market as well and I know with some of those institutions they just don’t want to do any financing for the Self Managed Super Funds, at the moment.
Paul Glossop: Yeah, for a few reasons as you said I think it’s quite difficult. It’s quite laborious, time-consuming, labor intensive, exactly what you said. Going back to the reason of Self Manager Super Fund property purchase is really to make sure that it is quite a safe investment. The government doesn’t want and the banking sector doesn’t want people to be speculating in that space and therefore obviously like you said LVR’s reducing, we’re seeing more cash to be kept in reserve and we’re seeing probably a higher restriction and a higher interest rates. The banks want to make sure they’re protected by the sounds of it. Probably to touch on that as well if I were to say a general Self Managed Super Fund, let’s say the fund itself had approximately a quarter of a million dollars cash in it. Ideally in this market right now what would you say that that would look like from how much they can potentially borrow in the grand scheme of things, and what kind of cash reserve they would therefore have to keep aside if you’re sitting on a portfolio or Self Managed Super Fund of approximately quarter million right now?
Anthony Pears: Sure. That’s actually a great question, because we’re actually just doing that for a client at the moment. His fund balance is a little bit less. It’s around the 230 mark but it’s going to be around the same sort of numbers. The bank is actually requiring a cash pool of at least $50,000 there.
Paul Glossop: That’s twenty-odd percent there.
Anthony Pears: Yeah and with this client, the numbers have come out that he can look for probably for the purchase price of about 420, 420 to about 440.
Paul Glossop: And that’d be an LVR of about 70% on that property. So, I guess, yeah, there’s a couple of things there. You’ve got a cash deposit kept aside, you’ve got to make sure that just because you’ve got quarter million in that scenario, say 230 thousand, you can’t borrow up to 70% of 230 thousand because again a portion has to be kept aside. So, making sure you’re realistic in what you can achieve from that fund and that pool of money is important because again I think a lot of us in the personal space say, “Well I’ve got a 20% deposit, I can leverage up to 80%.”
Well, if you’ve got 20% deposit you can’t leverage up to 80%; you probably going to have to keep again another 20% of that aside in a cash pool and then potentially only leverage the rest up to 70% and then you’re going to be stung at a higher percentage from an interest rate perspective as well. You probably know that here from all that information that there is a lot that goes into making sure the strategy and the objective and the structures are correct. I think sitting down with someone like Anthony and his team to make sure all those aspects and those ducks are put in a row before you buy that property is imperative.
You can contact him; in the bottom of the screen details are there. You can also talk to us in regards to property type specifics, when it comes down to buying that property in the Self Managed Super Fund. But again guys, if you have any further questions feel free to contact us. We can put you in touch with anyone you need to be put in touch with. We’ll no doubt chat with you very soon. Cheers!
Paul Glossop: Welcome to Pure Property Investment one on one. Today we are joined by Anthony Pears. Anthony is a partner with Integra Financial Services. Guys, with I guess the rise and rise of Self Managed Super Funds and potentially purchasing property within Self Managed Super Funds, I thought it’d be important to talk to someone such as Anthony who’s got a lot of experience in that space to talk about what are some of the actual restrictions that potential investors need to understand before they go through all of the paperwork and the trials and tribulations of setting up a Self Managed Super Fund to therefore buy or potentially buy a property because there are a lot of restrictions, a lot of pitfalls that people need to understand. There’s also a lot of upsides but I think key to that is understanding the information and having a good partner in that space before you go out and actually invest.
So Anthony if you don’t mind sharing with our viewers a little bit more about the potential restrictions in buying property in a Self Managed Super Fund.
Anthony Pears: Thanks Paul. So, what we first need to realize with superannuation, and that includes Self Managed Super Fund, that you’ve got to make the sole purpose test. Now the sole purpose test means that the Super Fund is there to provide a retirement benefit and/or a death benefit in the event of death. Also, you’ve got to make sure that your trust deed allows you to do this investment property and purchase and borrowing. So, it may be a case that you have to do an updated trust deed.
The other main thing is that that property has got to be at total arm’s length. So, what we mean by that is it cannot be used for any member, trustee or associate for their own personal benefit. That’s the major one. There is one area where you can get around that and that’s for business real property as well.
So, the main thing is that it’s at arm’s length; so you can’t use it as a holiday house, you can’t let your employees use it, you can’t let your friends or relatives use it either. So, when you talk about arm’s length, and for a property itself, it’s got to be on real commercial terms. It may be like an investment unit, where the management is run by the real estate agent in that particular area. The rent goes obviously back to the Self Managed Super Fund; the Self Managed Super Fund pays all the expenses.
The other technical area is that when you purchase a property through that limited recourse borrowing, one of the other major restrictions is that you cannot use any of those borrowed funds to improve the property. It does get very technical because an improvement — what does an improvement constitute? An improvement could be something like replacing a toilet in a bathroom if the toilet gets broken. You could argue that’s not improvement, it’s just replacing the damaged fitting but for the ATO’s point of view, that’s an improvement. So there are various restrictions in that sense too so you have to be very, very careful. You have to make sure that it does meet with that investment strategy of your Self Managed Super Fund. That has to be reviewed annually too.
Paul Glossop: So. there’s a few key parts there I think that we discussed in the sense that’s making sure that you as part of your audit, you do a review of your investment strategy regularly. I think it also speaks volumes to the probably really overarching intention of this property; making sure that you buy the right asset is absolutely key in this nature and I think, I was hearing a lot of what Anthony has outlined there with certain things you’re restricted to be able to do, improve, not improve etc. You can see that it probably therefore would put in brackets the certain types of properties which would be the right property for a Self Managed Super Fund.
Outside of that there’s obviously different aspects; from a business perspective that’s probably a different kettle of fish altogether where you’re buying an office to run a business out of etc. But long and short of it, I think it sounds like really; Self Managed Super Fund investing from a property perspective, don’t try to do it to find a cheeky way to get around the ATO and potentially buy a house that you can live in very, very cheap or cheaply and plan that into your retirement assets as well. Because they’ll get you and they’ve got more systems in place than we know what to do with. So, I think ultimately it needs to fit in an objective, it needs to be something that is going to be at arm’s length as you said, and really the sole intention of that property is to make money over the duration.
Again guys, you would have noticed as part of that discussion that there is a lot more to it and “oils ain’t oils”. So, to speak with an expert when it comes down to really what you need to know, and what are the right investment types, what types of funds do you need to get set up in the initial stages, the different structures, it’s worthwhile speaking to someone like Anthony. His contact details are below at the bottom of the screen. You can also talk to us about investment types, property types that can go into those Self Managed Super Fund portfolios when that time does come. So, you can contact our team at the bottom of the screen as well and no doubt we’ll catch up with you very soon.
Paul Glossop: Good day guys and welcome again to Pure Property Investment one on one. Today I am joined by Anthony Pears. Anthony is a partner in Integra Financial Services. He’s a financial planner and also has quite a detailed specialty in the Self Managed Super Fund Space and that’s exactly what we want to talk about today.
Probably more so following on from some of our previous discussions around Self Managed Super things we need to consider from structures to the lending amounts, amounts you need to keep aside for cash. When we do get to the point of saying this Self Managed Super Fund has been setup, we’ve now got the strategy, we’ve got the structures in place, what are some of the things that people need to think about from a property specific purchase perspective and what are some of the ideal factors that we need to consider that make the ideal Self Managed Super investment.
Obviously, this is a general statement because everyone’s situation is going to be different. But when we’re talking about probably for the bulk of investors buying a Self Managed Super Fund from a property perspective, what are some of the things that you look at and advise your clients on.
Anthony Pears: Yeah sure, thanks Paul. First of all, we’re not real estate agents or property buyers, experts like yourself so we can provide some general advice. We can’t tell the client which property to go buy. But from an investment point of view you’ve got to look at the actual concessional tax environment superannuation needs. The maximum tax that you’re going to pay is 15 cents in the dollar in the Super Fund versus you and I can pay up to 50 cents in the dollar. So when we look at a property or an investment in a Self Managed Super Fund, what we tend to say to clients is that we shouldn’t be trying to look for saying that’s positive ore nearly positively geared. Now with interest rates on the move that’s going to be tougher and tougher, but we don’t want to have a negatively geared or highly negative geared property in a Self Managed Super Fund. If you do want to go down that route, we tend to say it’s better to be held personally in your own name where you’ve got a higher tax bracket than 15 cents in the dollar.
Paul Glossop: Yeah. It’s an important factor and I think you touched on the fact that even the fact that even if you’re going down let’s say for instance a 20 or 30% deposit into that property, you’re going to be charged a higher interest rate again as well. So, although you might have more cash to put in you’re actually going to be charged more from the holding cost because it’s bordering Self Managed Super Fund perspective or Self Managed Super Fund structure. Those property types, I think when we sit down with clients who are looking to buy that Self Managed Super Fund property, there’s a few real key aspects that we always need to focus on.
One is the amount that we’ve got to spend because that’s going to dictate what we’re restricted to buying. And then from there the duration, from how long do we have this property to work for. You know, you don’t have people buying Self Managed Super Fund properties with ten years to retirement or people buying with 25 or 30 years. The outcome there can be slightly different because of the property type and the performance you can get out of it.
But cash flow is also a very vital one. If the Super Fund is hemorrhaging money that means you’re going to have to top it up more and more. If you’re not getting capital growth on that asset, then you’re kind of investing in something just to keep it neutral which is not the ideal scenario. So, either a) you want to buy into a property which is going to keep recycling money into the fund or b), and hopefully the better or the combination of the two of getting something that’s neutrally if not positively geared, plus is in a well-positioned area that’s going to get you that capital growth over the duration.
It probably also follows on to the key question about diversification in Self Managed Super Funds and we talk about property we’re property experts in the buyers’ agency space but I think part of what you do and what we are, are key on to is diversification. So if you don’t mind lending a little bit of your insight with how that works in Self Managed Super Funds and how that can invest in different aspects or different potentially capital that is going to be going to different asset bases.
Anthony Pears: Sure. Well the main aim of superannuation, it’s a bit like a long term property investing as well is to actually generate real capital growth, ’cause remember we’re actually investing for our retirement. So we want that actual money to be working hard and to actually growing in value.
So depending on a client’s risk profile, depends on how much money that we invest in the different asset classes. But for growth assets you look at Australian equities, international equities, and property. They’re the main growth drivers of long term wealth within a Self Managed Super Fund or any investment portfolio per se. So with Australian shares –again we all know and love Australian shares. We’re one of the highest ownership rate of shares in the world, in Australia. Everyone may seem to have Telstra, as Telstra got floated early on; we love our banks, we love Woolworth’s, we love West Farmers.
Having said that, Australian share market actually represents only 2% of the world’s global share markets; so actually diversifying out of property, having some money invested in the Australian share market but also importantly investing in the international share markets. So in Australia we don’t get access to technology companies like Apple or Microsoft. So it’s important that we diversify across those different asset classes.
From the ATO’s point of view as well, they are concerned with a lot of the Self Managed Super Funds only having property in there. It doesn’t really make the investment strategy of the Self Managed Super Fund. The investment strategy is an important document and it’s a legal document for your Self Managed Super Fund and it actually points out that the Self Managed Super Fund should be diversified. So if you’ve only got one property or two properties in your Self Managed Super Fund, are you really meeting that investment strategy guideline? Probably not.
Paul Glossop: Yeah. It’s a good point and I think that’s something that’s key to point out when you’re investing in property in Self Managed Super Fund is if you do want to buy property and you are adamant that property is going to be the cornerstone to your Self Managed Super Fund, great! Make sure you have the right strategy in place; but also speaking with someone like yourself Anthony who’s probably sitting there to say, “Yes, property will make up a portion of that portfolio and a portion of that strategy” and that’s obviously where we come into the fold sourcing and securing the right property accordingly.
But when it comes down to if that property doesn’t perform or if we’ve got some defense played elsewhere or conversely what you’re going to invest in international or Australian equity shares etcetera, you’ve got some defense play back in the property market. And so I think a well rounded portfolio really should have some different asset classes in different areas. But predominantly I think, and one thing I always like to make sure that people are aware of, is that you need to understand it. Don’t just advise or get the advice. Make sure that adviser is giving you the intention or the understanding and saying here’s why, here’s what, here’s how. ‘Cause that’s part of being the true terms of a ‘self managed’ as much as you can employ advisers. You do want to have control at least on the understanding of where your money’s going and why it’s going there and what you expect to come back as a return because you really want to be educated, you want to be enthused about how you’re going to generate wealth in that.
But again guys, I think speaking to someone like Anthony and his team at Integra would be vital to that discussion in the early stages. You can contact him, details at the bottom of the screen. Also, if you want to talk to us about any of those property specifics, feel free to contact us at the details below as well. We’ll catch up with you soon. Thank you.