Self-managed superannuation funds (SMSF) are making rounds in the business side of property investments. Originally set for acquiring residential properties, people invest in SMSFsfor maximising its earning potential in commercial properties.
Status of SMSF
There are stipulations that more SMSFs are going to commercial properties than in direct residential property, its original use. About $54 billion goes to investment in commercial properties, while there are only about $17 billion in direct residential, as reported by Australian Taxation Office.
Colloquially known as DIY funds, since the 1990s, one can invest 100% in real estate from which a fund member runs an enterprise. Since 2008, funds can borrow money to finance such acquisitions, even borrowing up to three quarters of the real estate value.
So why are SMSFs so popular even now? As a fund, SMSFs can lease a property from which a business runs to a member or a related party. DIY funds set up by business owners will choose to buy their business property because paying rent to their superfund is more appealing rather than paying a landlord.
Getting More from SMSF
Experts say that thorough analysis is imperative to forecast whether the investment in SMSF commercial properties is leasable or sold easily once business folds. How attractive the property would be to other tenants would need realistic assessment on the first years and then ongoing basis looking forward five to ten years down the road.
A valuation of the property needs to be more than just the document. It should reflect the ability of the investment to deliver the sustainable income and pose development potential. After all, the property market is subject to volatility though it never stays down.
Whenever you are acquiring a property, it is always useful to consider its present use, as well as thinking that you are buying a future development site. With this in mind, use your SMSF in an investment that can double or triple its price value.