Pursuing the great Australian dream through your Super Fund

Most Australians love real estate. But, it is a difficult investment for a Self Managed Superannuation Fund (SMSF). Firstly, a big $500k investment is lumpy for a SMSF. Secondly, you can't borrow (negatively gear) to buy. All non-SMSFs can borrow whatever they want but SMSFs are not allowed to borrow.

This is why I started the Residential Property Trust of Australia www.fortunafunds.com.au. You can buy into the Residential Property Trust of Australia fund for as little as $10k. This will get you into a portfolio of established residential property through a managed investment scheme.

Soon there may be yet another way to achieve your client's dream of direct residential property in their SMSF. The Federal government is considering allowing your SMSF to borrow to purchase rental property.

Over the last 10 years, banks have found a way for SMSFs to borrow to buy shares. How? Through Instalment Warrants. Instalment Warrants allow you to purchase shares for a small percentage of the actual cost of the full share. Even though you only pay a percentage of the actual cost, you still control the full share and receive all the dividends. For those of us that suffered Calculus at high school this is your classic derivative. Only at some point in the future do you have to pay for the share.

So when the new law is passed you will be able to purchase rental property with Instalment Warrants -- in effect your SMSF will be able to borrow. Mum and Dad can buy property with a 20% deposit and borrow the rest. That window is now opened up for your SMSF to do the same.

Sadly, there are a limited number of companies that provide Instalment Warrants. I hope that will change with increased demand.

Negative gearing (providing your asset sufficiently appreciates) can fast track your capital growth. It also allows your financial planner to provide for greater diversity.

The SMSF can benefit from the Residential Property Trust of Australia or this negative gearing in their SMSF. Should Mum and Dad negatively gear or should they let their SMSF do that job? I have put in the pros and cons in our Platinum Club special commentary.

For regular Bulletin subscribers wanting to have a look at what Platinum Members receive each week, I have, as a one off, opened the curtains on this week's special Platinum Club commentary below in red.

Category:

News & Politics

Tags:

• brett
• davies
• lawyers
• fortuna
• funds
• managment
• SMSF
• self
• manages
• super
• fund
• borrow
• negative
• gearing
• real
• estate

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cool stuff man!! you should do a business news program on TV!!