Mixing super & property : The combo is the stuff nightmares are made of


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If you wanted to get an Australian all hot and steamy over finances, there would be two essential elements to your narrative.

Your elevator pitch would maximise the potential audience if the following phrases were weaved in – “legal tax dodge” and “property riches”.

We’re famous for loving property. And, after the Greeks, who’d pick up a gold medal for never wanting to pay tax on anything, we’d be a medal chance for our preparedness to get one up on the tax office.

Combining the two?

Well, that would be combining “geared property” with the legal tax minimisation scheme that we know as “superannuation”.

If you haven’t done so yourself, you will probably know someone who has made a motza out of property.

Soooo …

“Wouldn’t it be freaking awesome to join them? But do it in super where you pay sod all in tax? How? Let me show you, my friend!”

This, roughly, is the sales pitch that keeps me awake at night, scares me witless. I know it’s repeated dozens of times around the country, every week. To people who are desperate to get on the property investment ladder. But who, in all honesty, shouldn’t be allowed to do so.

“Whaaat? Shouldn’t be allowed to buy property? Seriously?”

Yes. Banned.

Because their greed will cost them their future. In many cases, everything they currently have in super.

So many people want to get on the property investment ladder. (I love property and believe it’s an awesome wealth creation tool, if you know what you’re doing, or are well advised.)

It’s a complex investment. And many people don’t have the income, or the capital, in their personal names to be able to get into the property market.

(There are some really, really, bad property investments out there. An extraordinarily large number of them derive from developers.)

You can further cull from there those who don’t have enough knowledge to avoid even the most basic and costly of errors (which include buying from developers).

The only way you can buy direct residential investment property in super is via a self-managed super fund.

And this is what developers pray on.

Go to a “property investment seminar” these days and you are generally told that if you can’t afford to buy it yourself, you might still be a possibility in a SMSF, if you and your partner have enough super and can combine it. (I know because I go along occasionally and give a fake name, for kicks.)

Understand that these seminars are usually simply fronts for property developers trying to flog off their stock.

Despite what they say, the advice you’re given has nothing to do with your best interests. The advice is only centred on how they can exit this development with a profit and move on to the next one.

The advice is generally abominable. (I’ve recently reviewed some advice from an “adviser” that was even worse than abominable. I was speechless. No words.)

But worse, it will almost certainly harm your financial health.

When people come to see me, wanting to buy an investment property inside a SMSF, I have two qualifiers for them.

  1. Have you ever owned investment property outside of super?
  2. Have you ever run a business?

Simply, if they don’t answer yes to at least one of those, they are simply not ready to open up a SMSF and buy a property. Well, not from me. I won’t help them do it. (Plenty of others will, I’m sure.)

I’ve seen too many disaster stories. Actually, I’ve not come across any uplifting stories of people who have bought property in a brand new SMSF, from a property developer. None. Ever.

The deck is stacked against you. I know how badly it is stacked. I’ve witnessed enough to make me cry. You, however, will believe that it will all be different for you …  or worse, you won’t actually have a clue of how badly you’re about to be fleeced.

I’ll go as far as to say this. (Again.)

The single biggest threat to a brand new SMSF member/trustee is a property developer. There’s daylight to the second biggest threat.

We love property investment for a very good reason. Countless millions of Australians have made relative fortunes from this as an investment class.

But we don’t tend to hear about the disasters. Australians hide those.

Property involves big bucks and usually enormous leverage. Don’t gamble your entire super balance on setting up a SMSF to line the pockets of a property developer.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.

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