Our SMSF Journey
So this is our own SMSF journey. It might not be typical, yours might turn out completely different. It is meant to be an example of what is possible, not a recommendation of “how to”. And certainly not to be taken as financial advice.
We started in 2017 with a combined super balance of about $130,000. I was keen to set up an SMSF and buy a property. I wanted a new property as it was going to be interstate and I wanted to minimize maintenance. I also hoped a new property would attract a tenant who wanted to live in a new home and keep it looking nice.
We set up the SMSF early 2018
Finding the right accountant to help us was the next step. Someone who specializes (or really understands) SMSF. Who takes the time to explain all the parts to us, warns us of the possible problems and risks but also believes in this. Perhaps an accountant who has set one up himself.
Then the practical stuff. Roll over forms, SMSF trust deed, trustee set up, bare trust, corporate trustee for the base trust, meeting minutes, there is a lot to get ready and take in. Cost us about $3,500 from memory…. Not cheap but this is what we decided to do, this is what we believed is a good strategy so all in!
But after all that we were ready.
Property criteria
I wanted a growth location. Capital growth can easily be 4% a year and that would mean about $15k – $20k a year. I believed that kind of return would not be possible from cash flow….
I wanted low or no strata fees as it is a variable that can increase overall expenses without us having any control over it. I wanted a property reasonably close to a capital city, close to major infrastructure like a freeway or train line and with entertainment and shops not far away. I wanted to push the boundaries of what we could afford as rent + super contributions would cover the repayments and the higher purchase price would -hopefully- result in a better quality property.
Long list of wishes. You don’t normally get all of them (unless you have a big budget…) so we focussed on the major ones for us. New, near transport, at least 2 bedrooms.
Where are we now….
So I am writing this Aug 2024 and a lot has happened…. COVID, interest rate rises, lender change, lots of small repairs…. This paragraph is to fill you in and let you know if I think it was worth it (so far), how it compares to an industry super fund and what I expect from here.
We started with a $377k purchase, $380/w in rent and $19,500 in cost (stamp duty, SMSF set up, solicitors etc). So we were +/- $20k down….
After all expenses (insurance, management fees, strata fees, vacancies, …) we cleared $100 a month. This seems great but we are $20k behind the eight ball and the loan is interest only. To pay the loan off at this stage would add $1,000 a month to our expenses. And $100 per month is nothing over 20 years compared to an industry super fund.
BUT…. We believed it would not stay that way. Over time, rent and value increased. We are now getting $600 per week and the value is close to $540,000. The loan should be paid off in 2043 and the rental income should be $2,200 per week (hard to believe at the moment….). The value of the property is expected to be approximately $2m. We are also making other investments with our super to help pay the mortgage off sooner.
That means we could have a $2m asset + $2,200 per week income from our super in retirement.
If we would have kept our money in an industry superfund we would have had about $716,000 and no income. See moneysmart/superannuation-calculator for that calculation.
