Setting up a property in a SMSF – Ian Rodrigues

We are developing a series of videos in conjunction with our show partners – Your Investment Property – that deals with property in a Self-Managed Superannuation Fund (SMSF).   What works best, avoiding the pitfalls and the pros and cons.  You will find more about the videos on the YIP Featured Channel on the Real Estate Talk website but today Ian Rodrigues gives us some interesting stats about the trend and who can benefit – it is not for everyone as you will hear.
Kevin:  A few days ago, we released a video on the Your Investment Property channel. It’s a video that I did with Ian Rodrigues from Bishop Collins in our continuing series as we look at self-managed superannuation funds.
There are a lot of facts that you need to get on top of if you’re looking at doing this for yourself, so I wanted Ian to come and join us in the show just to talk a little bit more about that, and maybe point you towards that video. So, go to the Your Investment Property channel website on Real Estate Talk and you’ll see that video there. It goes into a lot of detail. And by the way too, we give you a download opportunity to get a lot of these facts for yourself.
Ian, thanks again for your time. I wanted to have you in the show just to give that a little bit more exposure, because I think there are some key points we need to cover that will help people understand whether or not putting property in a self-managed superannuation fund is for them, because as you pointed out in the video, it’s not for everyone, is it?
Ian:  Definitely not, Kevin. There are a lot of these funds around. There are around 600,000 of them in the country in the moment, constituting over 30% of all superannuation money. Those are enormous numbers, and it’s been growth year on year that’s been coming there. But I am adamant that they’re not for everyone.
Kevin:  No, they’re not. And that’s evidenced too by one of the stats that we give you in that video, and that is that about 11,000 to 12,000 funds are actually wound up every year. And I think you said that that’s probably the result of people realizing this is not for them.
Ian:  Yes. In my experience, some of those funds in theory could be people getting to the point that the members have died and the funds are wound up – there would be an element of that, but in our experience, there are a lot of people who have set these funds up, they’ve jumped on the trend, everyone’s got one, maybe they’re keeping up with the Joneses, and when you look at it, you think “Well, why do you even have this? You don’t have enough money in it, you don’t really want to make decisions about where to invest the money, and it’s not big enough to really justify the cost of running it.”
Kevin:  The cost of running it and also the cost of setting it up. So, if you do set one up, it’s not easy, it takes time, but it also takes money, and then if you wind it up in a year or two, you really have lost a fair bit of money, Ian.
Ian:  Absolutely. And I think the danger with these things is that people haven’t thought through before they do it what’s involved in running it. It can be easy for the member because it’s easy to make your accountant or financial planner set it up for you. You just write them a check and fill in some forms and away you go, you’ve got the keys. But they are complicated.
There are a lot of obligations, and your advisors should be looking after all of those for you, but it does mean cost, and the cost is really great when the fund is big enough, but the cost is very fixed. So, when the fund is small, it can be quite a big number.
Kevin:  Yes. How big are the funds generally? What’s the average size?
Ian:  There are funds ranging everywhere, but the average size of a fund is over $1 million now. And the typical member is in their 40s, so they’re still in the accumulation phase. This is a massive growing part of the market. There are funds that are still in growth phase. There are net new funds every year of around 20,000 or 25,000 funds – net of closedowns.
We’ll be looking at this in another five years and it won’t be 30% of super money; I’d suggest it may be a lot more than that again.
Kevin:  We’ll do a “word to text” of this interview, so just scroll down, and I’ll make sure that our producer puts a link to that video, because in the video, we offer you the opportunity to download a whole lot of material about this so that you can become more educated yourself before you can go and see your own accountant about whether or not you should do this.
All of that comes, of course, from Bishop Collins. They’ve actually supplied that to us. A lot of the information came from the ATO I believe, Ian. Is that right?
Ian:  That is correct. The ATO put out some great numbers, and for people who like the numbers, there’s a lot of data in there to digest. For the accountants, we love it, we look at it every year, but it does tell you a lot about funds. They have some good guide books if you’re an aspiring trustee, and if you are a trustee, you’d probably read them and give yourself a sleepless night.
But it isn’t that bad. The point I make is it is complicated, it is difficult, there are lots of rules, but that’s not for the members to worry about. They just need to know the most important stuff to not do, and their advisors need to look after the rest.
The biggest concern the ATO have with these funds is people taking their money out of it before retirement age, so basically lending money to themselves. That happens on a small scale relative to the size of the market, but it is the major concern the ATO has.
Kevin:  Okay. An opportunity, once again, go to that link, watch that video that I did with Ian. A lot of information inside the video. It runs for about 10 or 12 minutes. But also opportunities to download some links and get a lot more information for yourself.
Ian Rodrigues has been my guest from Bishop Collins. Ian, once again, thanks for your time.
Ian:  No problem, Kevin. Our pleasure.

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