Purchasing Investment Property in Your Own Name – Have You Thought About Using Your Superannuation?

Using negatively geared property has been a favourite of Australians to build wealth for a long time – and it is easy to see why with proven capital growth, the easy ability to borrow to fund property purchases and a nice big tax refund at the end of the year.

But is this strategy still the best option now that SMSFs can borrow to acquire both residential and commercial property? This article will compare each strategy and provide some insight to enable you to make a better informed decision about your next (or your first) investment property purchase.

First Match – Financing:

To finance the purchase of your investment property, you are going to need to borrow. This means paying a visit to our friends the banks. In Australia the home lending market is dominated by the big players – and in regards to the loans available to SMSFs it is no different. Leading the pack are Westpac, NAB and St George. CBA also have a lending product – however it is more restrictive than the others.

The LVRs available when obtaining an SMSF loan compared to a normal investment property loan are slightly reduced – typically being 72% – 75% for residential property and 65% for commercial property. This will mean you will typically need a larger deposit if buying via an SMSF – however for the majority of people this is not going to be a problem as likely you will have more available in your super than sitting in your savings account.

In addition to the lower LVRs, the establishment and legal fees charged by the banks are significantly higher for a SMSF loan when compared to a typical investment property loan. Once again these additional costs can be offset by the additional superannuation monies you have available – i.e. you don’t have to fund it out of your own pocket.

When it comes to the lending side – borrowing via a SMSF is always going more expensive than a typical investment property loan both in terms of the set up.

Negative Gearing: 1 SMSF: Nil

There is a compromise here though. If you personally have enough equity available in other properties to fund some or all of the borrowings the SMSF requires to complete the purchase of a property you can become the bank and lend to the SMSF. This is referred to ‘member financing’ and can be used as a replacement or complimentary to bank financing. This method substantially reduces the borrowing costs.

Second Match – Taxation:

You are probably wondering what the taxation consequences are when comparing negative gearing against the SMSF purchasing a similar property? It works like this: A property is negatively geared when the total taxable income generated from the property is less than the total deductible expenses relating to it.

For example if your negatively geared property was costing you an additional $200 per week, over the period one financial year your overall tax deduction (negative rental income) would be around $10,000. If you marginal income tax rate is 30% + 1.5% Medicare you would expect a refund of around $3,150 at the end of the year. Overall you are still out of pocket by around $7,000.

If a property with the same costs was held by your SMSF, you can salary sacrifice $200 of pre-tax income to cover the loan repayments and other property related expenses. You do not pay income tax on any amount you salary sacrifice, so if that amount totals $10,000 per year – then just like the above example your tax saving is the same – but instead of paying the ATO week to week and then getting a refund at the end of the year, you are simply not paying tax on that money at all.

Now, as you may know any employer ‘concessional contributions’ such as salary sacrifice into super are taxable by the super fund at 15%. However, the SMSF is also entitled to the same deductions relating to the property that you are – meaning there will be a nil tax impact.

So, when you compare the strategies, the week to week tax impact is the same. However, when it becomes time to sell the property and realise the capital gain the SMSF is the clear winner. If the property is held for more than twelve months, the SMSF pays 10% on the capital gain – so if the property was sold for $150k more than you paid, the SMSF would pay $15k in capital gains tax. By comparison if you held the property in your personal name and you have wages income of $80k, the tax and Medicare payable would be just under $30k.

But wait – there’s more! If you hold the property long term in your SMSF and commence a pension when you reach age 55, all the income (such as rent) and capital gains on assets used to support that pension (such as the property) are tax exempt. If $15k tax is better than $30k tax, then $0 tax is the Holy Grail.

Negative Gearing: 1 SMSF: 1

Third Match – Access to Funds:

Another important consideration is access to funds. Monies contributed to super must stay in super until at least age 55. By comparison if you profit from the sale of an investment property held in your own name the proceeds can be used to pay off your mortgage, credit cards, car loans, pay for a holiday or buy a boat.

However, if you goal is to continuously build up a property portfolio to provide income for your retirement and you intend to re-invest any gains you make into more properties, the fact that you can’t access the funds becomes less relevant.

As I mentioned, super monies must stay in super until age 55. If you are like me that time is a long way off – but what about your parents? Chances are they are a lot closer or more likely over that magical age already.

There is a way for your parents to help you purchase your first investment property, while simultaneously generating a healthy return on their money AND providing the means for you to legitimately unlock some of the equity you will build up in your SMSF investment property. To find out more about this fantastic strategy you need to read my other articles and also check out my blog via the link at the bottom of this article.

Negative Gearing: 2 SMSF: 2

Fourth Match – Deposit:

As previously mentioned like most average Australians you probably have more available in your superannuation than you do in your personal savings account.

Utilising a SMSF to access this money as the deposit for an investment property means two things:

  1. You can buy your investment property sooner
  2. With the higher deposit you are more likely to be able to buy a property that is cash flow positive

Saving money for investment purposes is hard, it takes a long time, the earnings on those savings are typically low and you get taxed on that interest to boot! Utilising your super means you can get into the market sooner and start to build your wealth sooner.

So you are probably wondering how much is enough to get started? Well – it depends! Refer to my other article “Self Managed Superannuation Fund (SMSFs) – How Much is Required to Set a SMSF Up?” for more information about how much is enough.

The ideal situation in my opinion with any property investment is to find a property you can afford that has positive cash flow. This means the monthly income from the property is more than the monthly expenses. A good way to think about it is like this:

Q: If a property costs you $100 a month, how many can you afford to own?

A: Maybe two or three before it costs you too much

Q: If a property gives you $100 a month, how many can you afford to own?

A: As many as you can save a deposit for!

If you have read anything from Robert Kiyosaki of Rich Dad / Poor Dad fame you will know exactly what I am talking about.

As previously mentioned, when borrowing through a SMSF the banks require a larger deposit (i.e the LVRs are lower). The silver lining with this is that with the higher deposit, the more likely you will be able to find a cash flow positive property.

Add the taxation impacts of depreciation and capital works allowances available via a quantity surveyors report and you may even be positive cash flow but negative rental income for tax purposes!

So what if you do the sums and you calculate that you are well short of what you need to purchase a cash flow positive investment property? If you find yourself in this position I suggest you do the following:

  1. Have you included the current super of you and your husband / wife / defacto? Combining both your current super balances into an SMSF may give you that larger deposit.
  2. Are your parents willing to help you out? If they tip in an additional $20k will this get you over the line?
  3. Can you access some equity in your own home loan? You can either put in an additional contribution or loan it to the SMSF as a second ‘member financed’ loan in addition to the banks loan.
  4. Read my other article “Under 35? Five Simple Things You Can Do Now to Boost Your Superannuation Savings”

If you don’t have the money available now – look on the bright side – you can spend your time educating yourself so when you do have the money you will make informed decisions.

Negative Gearing: 2 SMSF: 3

Fifth Match – Ongoing Costs:

When you own an investment property on your own name, you need to complete a rental property schedule as part of your yearly income tax return. Most people can do this themselves or if they engage an accountant to complete their tax return it simply adds a bit more to the annual fee they have to pay.

By comparison a SMSF is a whole other entity. You annual administration costs are typically between $1,000 and $3,000. There are ways to make your annual administration costs towards the lower end of this range however.

Negative Gearing: 3 SMSF: 3

Sixth Match – Asset Protection:

Although this is probably not relevant if you are a typically salary and wage earner, asset protection is very important for small business owners (and future small business owners).

If you operate a business and you have an investment property in your personal name, if someone tries to sue you that property is at risk. By comparison any assets owned by your SMSF are untouchable.

Negative Gearing: 3 SMSF: 4

Seventh Match – Death, Divorce and the Bank:
What happens when things go wrong?

When you die, assets in your personal name become part of your estate which are subsequently distributed to your beneficiaries (spouse, children etc) under the supervision of the executor as per your Will. In general there is no tax.

The treatment of your super when you die is a little different – there are both advantages and disadvantages.

Superannuation, like an investment property held in your own name is part of your matrimonial assets – meaning it needs to be split between the divorcing parties. When a SMSF that only holds property and cash is involved, the typical course of action is to sell the property, pay off any loan(s) and transfer each party’s interest to a separate fund (SMSF or retail / industry fund).

Whether the property is owned personally or in an SMSF, if you can’t make the loan repayments the bank has you over a barrel. If everything does go wrong and the bank re-possesses the property and sells it as the mortgagee if the property is in your own name, you may have to fork out to pay any costs that the sale doesn’t cover.

By comparison, the SMSF loan has to be ‘limited recourse’ meaning they bank only can access the proceeds from the sale of the property – not any other assets of the SMSF or from you personally. Also with the SMSF loans requiring higher deposits (lower LVRs) it is less likely the sale proceeds wouldn’t cover the loan repayment and associated bank legal costs.

Negative Gearing: 4 SMSF: 5

In general, purchasing an investment property via a SMSF is going to be better strategy compared to buying it your personal name.

Travel Safety and Travel Planning

When you are visiting overseas, you want safe journey. Visitors can, thus, become sufferers of violence or crime or experience sudden problems. In due course, visitors will encounter an emergency while go overseas. Dealing with an illness, serious injury or running out of money is never a nice condition. Thus, a small preparation beforehand can aid you better arrangement and deal with circumstances life tosses at you. There are various preparations you can prepare before travelling to avoid these phases of life such as health insurance, Medevac Insurance or Medical Evacuation, important phone numbers, take money cleverly and in numerous forms, know the lingo and also leave the copies of your plans with someone your family members. Here in this article, we will tell you some of the important points which you have to remember before travelling and have pleasurable journeys. Given below are some of the points for travel safety.

Medical emergencies:

While traveling medical insurance is become very helpful when you met with any accident or any miss happening because of this insurance you can get free treatment, so in this situation try to call for aid from any way. If you are capable of, talk to the emergencies services number. If you experience any trauma injury, find out any hospital or clinic ASAP. If the situation is under control then have sometime and make a good selection as to which hospital to go to. You can also talk to your country’s embassy and inquire about which health care or hospital the embassy suggests. Inform your relative or family members as soon as possible.

Aggressive Dogs:

Aggressive dogs are one of the normal issues when visiting in places like South America, Asia and Eastern Europe countries such as Romania. The dogs are mainly untamed and possibly running around feral in groups, which can be highly frightening if you are faced by one. So it is very important to take some precautions like travel in groups, evade regions where the dogs are, avoid going out at night as at night they are more active or take a walking stick along with you, if you want to go. This will help you to decrease the threats.

Common scams:

There are various common tricks that happen in various spots that the visitor should be alert of. These are planned to take your business or money from you in fake shams. They come in 3 groups such as overcharging you, coercing or deceiving you in paying for a service you do not need and also outright left. So it is very essential to be very alert from these scams.

Pickpockets:

Beware of pickpockets, pickpockets are robbers who steal things (often passports or wallets or sometimes other expensive things) from people’s bags and clothing as they walk in a crowded place. Pick pocketing is one of the old offenses that are constantly being recreated. This act is very dangerous in any tourist destination. Please remember don’t carry expensive things and only that much of cash you need this will help you make your journey safe and happy.

The Advantages Of An Undergraduate Online Education

Why Online Education?

After a hectic time in high school, most graduates want to take some time off and have plenty of fun and unwind. A few also take jobs in order to pay for their education later – and others just want take the time to find out what they want to do. However, all of these delays are only hindrances to obtaining a degree and can have a negative effect on economic stability and future prospects.

It is well known that a bachelor’s degree is prerequisite to getting a lucrative job in any industry – and the earlier one has it, the better it is in terms of career growth. So with all these choices to make, online undergraduate programs are becoming more popular than ever.

The Advantages

With the Internet maturing day by day, the quality of online education is improving, removing all possible barriers to higher education. The primary benefit of an undergraduate online education program is that physical presence is not required to take a course. So with a busy lifestyle for a time consuming job, if a person has the zeal to pursue further education, the online option gives students the opportunity to do both.

When work takes up most of your time, even after a few hours of socializing and doing chores a few hours to spare, online education makes it easy to progress in your chosen career field. For those who cannot pursue a degree because of geographical constraints, pursuing an undergraduate education online enables them to attend classes from their home computer and saves them time and gas.

Other Advantages

Pursuing an undergraduate online education offers a similar level of education that is provided in regular classes. Students can work on their program of study at their convenience. Studies never interfere with travel plans, employment and basically any activity that couldn’t be done on the campus. Undergraduate online education is unique. They are more facilitative, as discussions are quick and easy to understand. Classes are held through chat, Internet meetings and email, as well with the subject coordinator and other students. There are virtually no shortcomings in online interactions.

Another advantage of undergraduate online education is that it is different from traditional education and benefits students by giving them access to develop technological competencies and exposure to telecommunication technologies. Also, online education gives students an exceptional experience in education, irrespective of age and geographic location. It provides psychological support by shedding introvert behavior and slow learning processes. With online education, students have time to prepare notes and other information discussed in the virtual classroom because all the subjects discussed will be posted online.

The best and most valid advantage of undergraduate online education is that there are a limitless number of courses by many educational institutes. From courses in fine arts to medical science, most are provided online and these e-learning courses are as simplified as possible.

Playing Online Poker For a Living – 4 Simple Tips That Can Help You Play Cards For a Living

Card game addicts can soon start dealing out cards no matter where they are, before you could even say “Indiana Jones”. These people love this game, and no matter what, they will always find a plain simple excuse to play it. Some play online for a livingIf you are quite in their league too, it is no wonder if your fingers itch all the time to try out your luck and fortune at the card games. Well, the solution to itching fingers is only a few clicks away. You can find many web sites where you can play poker online and also win money if you are a host to good fortune and tricky skills.Card players find it easy to play card games online, since here, the ambience is quite relaxed and quiet. You never know with whom you are playing. It could be an old man or woman, or a child as well! But one thing is for sure- here no one will be able to peep and have a look as to whether you have a winning hand or not. Here, no one is there to rush you, no one to call the shots but you. But even though this seems as if the rules here are quite easy and relaxed, actually, they are not. You have to abide by certain laws which if you neglect, will result in your disqualification.o Before you start to play, you must try to decide if you are willing to play poker for your entire income. To do this, you will have to look back at the games that you played in the past, and how you handled your bankroll after a big win. Did you jump into the stakes or invest your winnings?o Then again, if you had never the chance to see so much money while playing poker, but lost about ten tournaments in a row, you have to remember what your action was. Did you move down or up in stakes? These reactions of yours are necessary to judge whether you will be able to make a living on poker.o The main trick is not how much money you win, but how you win it. When you do not have a winning hand, you have to see that you lose very little of cash. But when you have the best hand, you have to try to call the right shots at the right time to milk in a lot of money out of your opponent’s pockets. To maneuver the game carefully you have to assess the situation accurately and rely on your gut instincts.o Another key skill that you need to hone is patience. You might be able to rely on your instincts, and make quite sharp decisions at the crucial moments in the game; you might be able to calculate thoroughly the result of every move of every player around the table; you might be able to tighten your purse strings when you have no winning hand, and get the best odds to win the most when you turn out to be the lucky one, but there is still a chance that someone might come about and upset your plan and shatter it to rubbles. During these times, it is necessary that you do not lose your head, but start to build another plan, so as to win back what you have lost.These rules will help you to get to the very peak where you can earn a lot of money, and there will be no stopping you as well. Remember, rules are important in a game, so that you do not get disqualified, and you can always use them to your advantage.