Generation X Super Strategy
Sam and Cathy are clients of ours and want to tell their story. Sam is 38 and earns $90k p/a; Cathy is 32 and earns $60k p/a. Their super was held in retail funds, Sam’s balance was $110k and Cathy’s was $80.
Both Sam and Cathy were keen to secure their financial future and wanted to look at how they could afford an investment property. Their family home is worth about $450,000 and they have a mortgage of $350k.
They had been researching property in the inner suburbs of Sydney and were considering an investment property. They had done all their homework and their research told them that within the next 20 years an investment property will grow in value. After speaking to Luke about the advantages of super, Sam and Cathy decided that using their super was the way to go. Luke explained that although they don’t have enough equity in their own home to fund the purchase they can use their super to purchase the property.
How The SMSF Strategy Works
Like any strategic review conducted by our firm there was a good review of all of Sam and Cathy’s circumstances. Following this we come up with a tailored strategy to assist Sam and Cathy reach their objective of purchasing an investment property.
- First off as Sam and Cathy needed to be aware off the issues faced with a SMSF loan; dealing with the banks, the borrowing rules, the Commissioner’s rulings and cash flows in committing to a SMSF Loan.
- The next step was to establish an SMSF and rollover their balances from their retail funds. We also checked on the ATO website for any other superannuation accounts that Sam or Cathy may have hidden somewhere.
- Luke arranged for a mortgage broker to deal with the bank to establish the SMSF investment loan which could take some time – up to three months, so it is important to prepare for this in terms of settlement terms and conditions with the vendor. Luke established the documentation to allow the fund to purchase the property.
- Importantly Luke liaised with the conveyancing solicitor to ensure that the name on the contract was the correct name as getting the name wrong could mean double Stamp Duty!
- We would strongly advise Sam and Cathy to review their current insurances in the event of something unforseen happening to one of them. It is obvious that the super fund would need to get general insurance cover over the property.
There are a number of variations to this SMSF Strategy for a Generation X couple and no doubt a few steps that may be added, taken away or varied. It is important of course to get good experienced advice along the way and we have completed many of these for our clients and will continue to do so.