Self-managed super funds can be a great way to build wealth, but they are not for everyone. While there has been a lot of attention lately, particularly in buying property through an SMSF, there are questions you should ask yourself before deciding to set one up.

1. Am I willing to take on the responsibilities of being a trustee of the SMSF?

As a member of the SMSF you must be a trustee (or a director of the trustee company). There are significant obligations on trustees to comply with the legislation. These include developing an investment strategy, ensuring the fund is audited and keeping trust assets secure and separate from personal assets. You can get professionals to help, but ultimately you are responsible.

2. Do I have enough funds to set one up?

As a general rule you would need at least $150,000 to buy property with leverage and even with that amount, all your eggs are in one basket. With the costs of establishing and running an SMSF, it makes no sense to set one up unless you have a reasonable amount of funds.

3. Do I have the right experts to help me?

For many people, their super will be their main investment. So if you are investing in property or any other asset, you should consider getting expert help. For property investors, key people you should consider having in your team are an accountant, financial planner, finance broker, buyers’ agent and property manager.

4. Do I understand how investing in an SMSF works?

Many people are not aware of the rules surrounding investing in an SMSF and borrowing to buy property. For example, you can’t knock a property down and develop. You can’t borrow against the capital growth in the property in the fund to buy more properties (as you can outside of super). The SMSF can’t buy a residential property from you or anyone related to you. Make sure you understand what you can and can’t do before setting one up and make sure that fits in with your plans.

As well as these questions, all investors need to understand the risks. It may be that you have too much of your investment wealth in property. If you choose a property that underperforms, it may set your retirement goals back many years.

If investing in an SMSF is right for you, it can give you substantial tax benefits and be a great way to build wealth for retirement. But make sure you understand the pros and cons before deciding if it is right for you.

Damian Collins is the managing director of Momentum Wealth, a firm of consultants dedicated to accelerating your wealth through property investment.

15 November 2013
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