Property like cash, fixed income and shares is an asset class included in a soundly constructed diversified investment portfolio.
Traditional super funds offer limited flexibility in how you gain exposure to investment property.
Typically when you have chosen a property investment strategy within an industry super account, you will have little idea about the underlying assets the property investment manager is exposing your super to.
The first place to start is understanding what options are available and how to invest in property.
Listed below are a number of ways to achieve exposure to property investment:
- Purchase an investment property using cash
- Purchase an investment property using a mix of cash and borrowings
- Shares in listed property trust (LPT)
- Managed Funds
- Exchange Traded Fund (ETF)
- Private property development syndications
- Private property investment syndications
Below are some questions which are designed to act a guide to help you to decide upon which property investment strategies may be suited to you and your SMSF.
What are the investment property characteristics?
- Does the investment provide income or capital growth or a combination of both?
- How reliable is the income stream, is it volatile or stable?
- Does the income carry any investment property tax deductions?
- How volatile is the capital value?
- Does this suit my needs?
How much capital is required for an investment property?
- How much capital or cash do I need to put towards investing in property?
- Does the amount suit the size of my total super asset?
- Will the SMSF be diversified enough?
- Am I prepared to risk this amount when buying an investment property?
How much of an active interest do you want to have in the investment property?
- How much involvement do I need to put towards investing in property?
- Do I have the knowledge, skills or time to undertake these requirements?
- Can it be outsourced?
- How much will it cost if I outsource?
Who is managing or controlling the investment property?
- Does the manager have a good track record in investing in property?
- What are the manager costs? Are they fair? Are their interests in line with yours?
Is borrowing an option for an investment property?
- If so, does my trust deed allow for borrowing?
- Does my SMSF investment strategy allow for borrowing?
- Is borrowing a suitable strategy for the members of the SMSF?
- Do I understand the additional risk when borrowing?
Does the liquidity of the investment property meet the needs of its members?
- Does the property investment allow for quick release of capital?
- Can part of the property investment be liquidated?
- Does the liquidity of the investment property meet the current needs of members?
- Does the liquidity of the investment meet the future needs of the members?
- Do you own your own home?
- Do you have investment property outside of super?
- How much should you have within super?
What returns do I need to achieve within my superfund for my investment property?
- To achieve your goals what amount of super do you need to accumulate?
- What targeted returns net of fees and inflation is required?
- To achieve this target what level of risk is required?
- Are you prepared to take this level of risk?
- Is property investment required in the portfolio to achieve this risk?
If you need help, we recommend that you seek property investment advice from a qualified financial adviser to help you decide what investments are right for you. They may be able to act as a property investment calculator. Supervision SMSF can help you to find quality property investment advice.