You don’t need to go far into a google search on owning property in Super to find many people saying it’s expensive and therefore, it’s not going to make any money. Spoiler alert – we have over 500 clients we are helping do just that! There are a lot of expenses when buying a property – both inside and outside of super – we know that. Though when you do know what they are and you can factor them into your investment calculations, you can find a property that will be a great investment for you.
So what are they? Let’s break it down into the initial costs and then your ongoing costs:
Purchasing an investment property is not a simple transaction and comes with various upfront costs. The property price itself is a major factor, heavily influenced by the location and type of property you’re investing in. Metropolitan areas, for example, are traditionally more expensive than rural ones. In addition to the purchase price of your property, you’ll have the following expenses:
- Stamp duty: Just like any property purchase, buying real estate requires you to pay stamp duty, which varies based on location and property value.
- Legal fees: These are necessary for the preparation and review of legal documents.
- Loan setup costs: when borrowing to buy a property, you’ll encounter several loan setup costs, including establishment fees, legal review fees, and more.
There all standard costs to any property purchase. To purchase a property in super, you need to set up a ‘Self Managed Super Fund’ or an SMSF. This is the legal entity that allows you to do so. To set up an SMSF, there is a cost as you’ll need professional accounting, legal, and compliance advice. We work with a partner who can do this for you with no out of pocket expenses and for less than $4,500.
Once you’re all set up, settled and you have a tenant in your property paying off your mortgage, there are ongoing costs for managing your property investment.
- Maintenance and repairs: Property ownership requires upkeep to maintain value and appeal, especially if you’re renting it out.
- Property management fees: If you use a property management service, especially for rental properties, you’ll need to cover these additional expenses.
- Insurance & Bills: You want to make sure you protect your investment with the right insurances in place. In addition, you’ll have bills like rates, water and maybe body corporate fees.
Again, these are all standard property expenses, the extra expense for owning a property within Super are your ongoing compliance costs. SMSFs have strict regulatory requirements, and ensuring compliance includes annual audits, ASIC fees, tax return preparation, and various administrative tasks. The partner we work with has a monthly fee of $289, payable from your SMSF to cover all of this – so there are no surprises, or unbudgeted expenses when it comes to your SMSF. Again, these are not out of pocket expenses.
The costs for owning a property in super versus outside of super turn out to be quite negligible, especially when you have the right strategy: know what to expect from the outset; budget it in so you’re profitable; and know what your financial goals are so you can keep moving towards them.
What would you do if you qualified for a property with no out of pocket expense?
