Should we spend all of our SMSF on investment properties?

I am 48 years old. My husband and I got set up with a self-managed super fund by a professional. We have total of $350,000. Should we buy two small properties or one larger property?

Have you heard the story of the Australian who was lost whilst driving through Ireland? They pulled over to ask a local for directions and his response was “well, I wouldn’t start from here”.

I’m far from convinced that you should have a self-managed super fund for your retirement savings, and I’m equally unconvinced that your retirement savings should go into one or perhaps two residential properties.

I’m not convinced you should have an SMSF in the first place, and even less convinced that you should spend it all on property.Credit: Simon Letch

On the assumption however that you don’t share my reservations and are determined to go down this path, based on discussions I’ve had with buyers agents and other property experts (of which I’m certainly not one), capital appreciation in property primarily relates to the increased value of the land. The physical property itself deteriorates over time and needs money to be maintained.

Chances are if you try and spread yourself across two properties they may well be apartments with minimal land component. Perhaps going for a single property might mean a standalone home where a greater proportion of the value is attributable to the land.

The challenge you face though is that you are taking a bet on a single property and relying therefore on a single tenant. I would imagine you will also be borrowing to undertake this transaction. This is a very risky and aggressive strategy, and whilst given your age, time is on your side, I’d still question whether this is a prudent way to accumulate retirement savings and secure your long-term future.

If residential property is an investment type you are keen on, would it not make more sense to invest outside the superannuation environment where negative gearing is more impactful, and access to finance far better? You also have greater options for things like subdivision and improvements.

I am 51 and about to receive a $500,000 inheritance. My husband and I both work full time. I’d like to reduce my hours next year to a four-day week. Our superannuation balances are $270,000 and $167,000. We own our home and have a two bedroom investment property worth $380,000 with a $320,000 mortgage. We contribute $350 a month to this loan. Should we pay off the mortgage and use the income to top up my salary? Or would it be more advantageous to continue to have the mortgage negatively geared with the plan to pay it off by the time I retire?

This is a great example of having clarity on your goals. As you point out, there are numerous options available to you for this inheritance (including several you haven’t mentioned here), and it can be overwhelming to wade through them all and decide the best way forwards.

To determine the optimal approach, I’d need to crunch the numbers. However, given your primary goal is to cut back to four days, I can certainly see how paying off the debt on the investment property and then having this income available to replace the reduced wages would make sense.

Your superannuation balances are low relative to your age, so once you have locked in your 4-day working week solution, consider whether there are some funds left over that could be used to give your super a boost.

Paul Benson is a Certified Financial Planner, and host of the Financial Autonomy podcast. Send your questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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