Investing for wcmproperty

Renovating for profit p 52

property growth
Tax busting property structures p 56
Buying with others p 60

By Chris Duffield, Head of Property, Dixon Advisory

Residential property is one of
Australia’s largest and most
successful investment classes.
So it may surprise that as at 30
June 2008, residential property
represented only 3.4% of all
SMSF assets.
Over the next few years, however,
we expect to see a massive
increase in SMSF ownership
of residential property. This is
because new borrowing rules
were implemented in late 2007
that allows your self managed
super fund to borrow to buy
assets, including residential
property. The global financial
crisis made the uptake of these
new rules much slower than
was initially expected but we
consider now to be an ideal time
for wealth creators to consider a
in Sydney’s inner east.
A Palmer Street property was
purchased in 1999 for $370,000,
while a nearby Bourke Street
property was purchased for
$372,000 in the same year. In
June 2002, the Bourke Street
property was sold for $772,500.
In July 2006, the Palmer Street
property sold for $600,000. In
2009, the Palmer Street property
had an estimated value of
$600,000 while the Bourke Street
property had an estimated value
of $870,000.
So, for the Palmer Street property,
the total capital growth was
62% while the Bourke Street
property had a total capital
growth of 139%. This represents
5% average annual growth for
with not only finding the right
property based on the latest
market analysis, but they can also
help you throughout the entire
purchase process, helping you
pay the best possible price for
your investment.
Funding your property
investment
For SMSF investors, there
are basically three options for
investing in residential property.
The most common way in the
past was to own the asset
outright. However, this often
leaves the fund undiversified by
asset class, and is probably part
of the reason that such a low
percentage of SMSFs currently
own a residential property.
able to be used as part of the
borrowings required.
The third option is to gear into a
property through your SMSF. For
this option, you will generally pay
between $8,000 and $12,000
in up front costs. You will also
pay a higher interest rate, which
depending on the lender can be
between 0.5% and 1.0% above
the standard rate. The LVR will
generally range between 60% and
70%. Products in this area are
rapidly improving, and this option Top 5 house sales at least $1m
is only now becoming more
common. For all readers, and Rank Suburb Council Area State Total Over 10yrs
particularly those under 50, who
1 Mosman Mosman NSW 3055
are looking to accelerate their
super, this is a great option to 2 Brighton Bayside VIC 1991
consider. Only $150,000 of super
can comfortably have you owning
a $450,000 property and getting
premium 3 Paddington Woollahra NSW 1376

4 Balwyn Boroondara VIC 713

geared residential property in their
existing or new SMSF.
Choosing the right property
If you do determine that
investing in residential property
is appropriate for your SMSF,
you first need to ensure that you
invest in the right property.
When choosing an investment
property, it’s not simply a matter
of investing in the right city, or
even the right suburb. Even
properties within the same
location can provide investors
with very different returns. Take
the following example of two
similar properties in Darlinghurst
Realise the full potential of an SMSF with advice from Dixon Advisory
Daryl Dixon & Max Walsh
CHAIRMEN
the Palmer Street property and
9% annual average growth for
The second most common option
is where you borrow the funds
the full benefit of the capital
growth of the much larger asset.
to pick up 5 Camberwell Boroondara VIC 691
the Bourke Street property. Two to purchase the property in your
properties in the same inner city personal name and then lend the Of course, a combination of the Premium properties had a tough houses above $1 million. In 2009 there were 271 house sales priced
suburb, but two very different asset to your SMSF. With this second and third options may slog during the GFC but things are at or above $1 million equaling 91% of all house sales in the suburb.
results in terms of investment option, you’ll pay the standard also be achievable and could
return. interest rate on the loan and your allow someone with an even starting to look up The top 20 suburbs featured Melbourne and Sydney equally
up front costs will generally be smaller super balance to consider dominant with two Perth suburbs also making the list. The inner city
The lesson here is that you really in the vicinity of between $2,000 residential property. suburbs of Melbourne of Sydney have recorded the most $1 million-
have to do your research into the to $3,000. The Loan to Value Premium property values have clearly outperformed the broader plus sales in 2009.
market in order to choose the Ratio (LVR) will depend on your This area is specialised and market in the last five years despite high levels of volatility according For top end buyers, there are still plenty of opportunities. Lawless
right property that will provide available equity and as you are you need to make sure you are
to figures from RP Data. said investors should remain cautious because premium properties
the best possible investment borrowing in your personal name, dealing with a group who has
return. Or, better still, utilise the lender will require you to put experts in all three key areas: National research director Tim Lawless said even though the have the tendency to bring in low rental yields and cash flow could
the services of a professional up your existing home or other SMSF rules; property purchasing; premium housing market value is up, sales have still remained low. become as issue.
property investment advisor who assets as collateral. Also, you and loan structuring. Since 1999 the Australian property market has recorded strong “For those that can afford the price tag, premium property
can help you find an appropriate cannot use the asset for gearing gains until it became victim of the Global Financial Crisis (GFC) in markets have generally provided stronger capital gains than the
property for your portfolio. into other investments – that
2007. According to Lawless Australians’ premium properties had a broader market place thanks to inherently tight supply on inner city,
Buyers advocates can also assist is the new property will not be
wild ride over the last three years. Figures from RP Data show that coastal and character properties,” Lawless said.
last year 19,417 house and unit sales were priced at or more than As the property market is gaining confidence official interest
one million dollars. This is 21% lower than results from 2007. rates increased for the fifth time within the past seven months.
“As the GFC kicked in and started to bite with shares and This increase will add around $50 to the monthly repayments on
property being sold off to recoup further portfolio losses, values a $350,000 mortgage. The Reserve Bank is hoping the latest rise
Dixon Advisory is Australia’s leading independently owned financial advisory firm. We across this same set of premium suburbs fell by 7.4% compared will simmer down the Australian housing market where the value
help more than 15,000 families with their finances including over 3,200 with SMSFs with with a 2.5% fall in home values,” Lawless said. has risen 12.7% across the capital cities in the 12 months to
combined assets of over $3 billion. The analysis confirmed that despite stronger capital gains in 2009, February 2010.
To help you realise the full potential SMSFs offer, and maximise the performance of your the sales are still yet to reach those of 2007. In 2009 the number of Almost 60,000 advertised properties were listed for sale last
super, we also offer holistic advice on investments, financial strategies, estate planning, sales was down 25% compared to 2007. Yet the most expensive month, the highest for the last 12 months.
wealth protection and property investment.
20% of Australia’s suburbs increased in value 19.8% while the Interest rates are likely to have a dampening effect on the over-
CONTACT US TODAY FOR FREE SMSF SET UP OR TRANSFER general housing market recorded a gain of only 13.7% in 2007. performing markets, as well as underperforming cities like Perth,
To find out how we can help you maximise the performance of your super, contact us today. Although when it comes to top performing premium sales the Hobart, Brisbane and Adelaide.
Call 1300 578 612, or email david.calvert@dixon.com.au figures haven’t changed much in the last five years within the top Last month there were more than 88,400 rental properties being
selling suburbs. Mosman in Sydney takes the top spot for most advertised across Australia; 6% higher than the previous month.
SAVE $990 WITH FREE SMSF SET UP OR TRANSFER
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