Quite a few years ago, I did some calculations on having a geared property within super versus a market linked ungeared fund portfolio.
I ran a model where I kept the parameters of the returns both from a capital perspective and a revenue perspective on the property and the managed fund the same. Essentially I wanted to match apples with apples.
So what was better:
A geared property with a SMSF loan.
A non-geared, market linked managed fund.
I ran the model on the below basic assumptions:
- 3% revenue return on the managed fund
- 3% rental yield on the property
- 6-7% compound capital growth over those portfolios over a 10 and a 20 year period
With the power of lending and the power of tax benefits within a self managed super fund, I realised you are going to end up about a third better off if you choose to purchase property in a SMSF.
33.3% better off.
Admittedly, there are all sorts of assumptions in there. The main assumption is that you’ve bought the right property that will give you at least a 3% yield every year and 7% compound capital growth.
But if you’re capable of getting that right property, you can be 33.3% better off.
This is not advice or official statistics – I’m musing as the man in the street with a little bit of tax knowledge chucked in.
What you need to do is talk to your lender, your financial advisor, and your tax accountant if you are even contemplating such a transaction with your retirement savings.
I’m just relaying the numbers I’ve done calcs on.