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.