How to Use Your Super to Invest in Property with Grant Abbott

There's plenty of opportunities in property development. This is the best time to actually buy, Rezzy, when there's, when there's blood in the streets

Can a self-managed super fund be a property developer?

Absolutely. How do I know that? Because the commissioner issued guidelines on it

I, I did actually lose a l- most of my money in my self-managed super fund in the GFC in 2008 share trading

People just aren't registering this at the moment.

There, there should be a tsunami going on in self-managed superannuation funds at the moment. So one of the ones that I wanted to leave your listeners about is that

You've committed your whole life to this industry, and, um, I congratulate you because most people get bored and try and change paths, but I

think what I've just given you there is probably the juiciest strategy that lasts for the next 5 to 10 years

Hey, I'm Andrew Wright, Principal of Professional Southport, and this is the Andrew Wright Property Podcast. I've built a multi-million dollar property portfolio, delivering a seven-figure annual rental income, and led my real estate team through thousands of sale and lease transactions. In each episode, I share real deals and strategies that will help you find, fund, and operate profitable property deals.

The aim of this show is to provide education and build a community of like-minded investors who can collaborate, share insights, and help each other in each other's journeys. You can make excuses, or you can make money, but you can't do both, so come and join us.

Mr. Grant Abbott, welcome to the Ender Wright Property Podcast.

Who'd ever thought that you'd have a property pod- podcast? I remember you were a pretty famous financial planner there for many years, and also one of

my best students when it came to self-managed super funds. Well, I'll, I'll tell the, uh, audience the, uh, history.

So, uh, in the mid-1990s, I set up a financial planning business, and shortly thereafter wanted to become a specialist in self-managed super funds. And to do that, to become a specialist SMSF advisor, I had to get accredited, and you were the leading trainer and educator for accountants, uh, financial planners, and lawyers back in the late 1990s.

So around the year 2000, I spent many days in a course that you ran. And to let the audience know how nerdy it was learning from you, you made me have a book about this thick called the Superannuation Industry Supervision Act of 1993.

Well done, buddy. Well, you get five stars on that one.

And you'd tell us to open up at page X, Y, Z and read through the clauses, and then we'd pull out another document called a superannuation trust deed and see if the legislation mirrored in the trust deed and whether we could implement the strategies we wanted to implement.

So that's what you taught us.

Yeah. And look, that's, that's the only way to learn really. And, uh, you know, since obviously all the hullabaloo around, um, the May 12th budget, I hear all these people coming and saying, "Oh, you know, my accounts said I can't do this or I can't do that." And it's, well, maybe actually if you read the legislation or you thought outside the box, then you'd actually start to see.

Because I, I see that, um, in the property, probably definitely up the Gold Coast, I, I see when there's fallen prices, uh, you smell opportunity. Um, and then it's a way of doing it. And self-managed super funds, there's now $1.1 trillion. They're like, when you did it, mate, there was only 140, um, billion. Now 1.1 trillion, and, and that's a sizable flex, uh, when it comes into the property market.

And really over the last few years it's been, you know, people have been using limited recourse and borrowing arrangements. I don't wanna go into them 'cause they're so... Well, unless, unless we talk about business real property. But they're so boring, not my style, and, you know, there's a, there's a lot more opportunities out there.

So, you know what? I, I think we're gonna have a lot of fun today and I'm, I'm really pumped up for this and gonna let fly with a lot of strategies. Now, of course, you'll probably go to your accountant and they'll say, "Well-" Accounts don't read the laws, they're not gonna know. But he does. He knows how to do it 'cause I trained him.

So Grant, a, a couple of ones that I'd love to go through, um,

when you're ready is, one, can a self-managed super fund be a property developer? And two, I, I would like to go through the acquisition of real business property, the exemption that is allowed within a self-managed super fund, and perhaps you can add any other strategies that are, uh, currently, um-

Fantastic ones around residential property.

So-

Okay, let's go through it. So let's starting off, uh, can a self-managed super fund be a property developer, Grant?

Absolutely. How do I know that? Because the commissioner issued guidelines on it, on, on how to be a property developer and how what he looks at would be outside the realm. So, um, base case is, um, if you think about it, um, Cbus Super- Property developer.

You know, one of the largest ones, uh, in Australia, and that's a superannuation fund. The self-managed super fund is just simply a, a smaller, um, version of that. Uh, one of the ones there is, uh, we look at our stock standard, um, really has been from the '70s and the '80s, um, and particularly has been very popular over the years is, um, a, a unit trust structure or a company structure I like to use now for self-managed, seeing that, you know, uh, I, I don't think there's a m- much of a difference.

It depends on who else is in there. But for example, if you and I wanted to go and buy a, a property or we want to do a knockdown, build a couple of townhouses, do a, a property development, then your self-managed super fund and my self-managed super fund, we wouldn't do it together as a JV, um, if we want borrowing.

Uh, we could do it as a JV if we got fully funded. So that's, that's typically what I do. You, you'll do a JV, which is fantastic. Um, and it doesn't have to be your fund. It can be my family trust or my bucket company or, you know, my... anyone in my family, even though related, I can do a joint venture there. The commissioner's guidelines are pretty strong on that one.

We've just got to be careful, um, to manage the compliance, um, issues around that. But again, if you go through, read the law, read all the rulings, um, and you know, un-understand what's going on in terms of the, the drafting of the deed, then you're fine. If, if you... Again, that's, that's with no borrowings obviously.

Um, and I'll talk about some residential property ones a bit later on. But i-if we want to do like a, a development, you and I, then what we'd do is we'd set up a unit trust or we'd set up a company. So generally, uh, where you're investing in a, a, something that's related to you, y-you're severely limited.

They call it an in-house asset. Why is that? Because it's in-house, it's related. Uh, but the exclusion of the rule are that as long as you don't have more than 50% and I don't have more than 50%, um, then essentially, um, it means that that vehicle is no different from a Westfield, from a C BUS, all of those things.

So we could really go to town and, you know, we can borrow. Banks will probably lend you maybe Who knows what, what'll be this, this time. You're probably more commensurate than I am, but, you know, probably around about seventy percent LVR. You're obviously gonna get construction financing. You can actually borrow from yourself, um, believe it or not, so probably not from the super fund, but from a family trust, a bucket company or whatever.

So that's related party financing. So a-again, um, it's, it's a perfect vehicle there for you. Um, the other one is, as I said, you can have joint ventures. Um, and look, I've done a couple there with a self-managed super fund. Um, puts in maybe two or three million dollars of, uh, equity, um, and then a developer puts in, um, quite a sizable amount, but then they, they borrow on their balance sheet, so it doesn't come into the self-managed super fund.

Um, and I've, um, uh, given advice on that for up to, like, three hundred apartments. Um, so do you know what I mean? There's, there's plenty of opportunities in property development, and it can be residential properties in there, um, because the, the rules around that, um, and even at the end of the day, um, the super fund can be left, like it gets split it apart.

So you, you can have your lot, um, units with the super fund, or you can actually distribute the property down into your self-managed super fund, vice versa, and then we go off and running. So it, it's a good way to get residential property inside a self-managed super fund, uh, with borrowing. Um, now the borrowing doesn't stay on the balance sheet, it stays up in the unit trust.

But again, it's, um, uh, it's, it's a pretty stock standard. You're not, you're not reinventing the wheel. Like this has been, uh, syndications have been out for a long time. And there's also a lot of guys that, you know, it, it... And you might have a number of clients that it makes sense that uh, you know, if you've got five or six people, um, and setting up a unit trust or a, a company, um, and they use all their self-managed super fund money.

So they all tip in and then you get someone like yourself who can buy maybe four or five properties, so they don't need to do property development, they're just raising investments, um, and then get some borrowings on that, you know, 70, 80% LVR. Uh, that's, you know, that's not a bad gig. The benefit of that is that, uh, one, is it sort of fits outside all the, uh, the government guidelines, uh, but more importantly, you don't have to use an LRBA, which is the limited recourse borrowing.

All the, all the gearing is done up in the trust. Just make sure that no one has more than 50%. Uh, but from that one, which I believe has always been the best, the problem about a limited recourse borrowing is you're sort of stuck with that, that one property. Whereas if you're in a trust, a syndicated trust, you can actually diversify.

Like if, if I said, "Look, Andrew, um, I, I've got six investors. They're gonna put in 500 apiece from their self-managed superannuation fund, so $3 million seed capital. We're only gonna put two in. Uh, we're gonna keep a million dollars, um, in the kitty just in case we've got renos, repairs or whatever. Uh, but the bank's gonna lend us $8 million, so I want $10 million of property, but I want diversification, but it's gotta be resi."

Um, then Jermaine, I'm sure you... I'm sure your eyes would light up because this is, this is the best time to actually buy resi when there's, when there's blood in the streets. Remember the old famous Rothschild saying, you know, that's, that's the best time to buy is when the blood's in the street. So I, I think there's a lot of opportunities.

Um, uh, it's just that people Th-their accountants aren't gonna know how to structure it. Um, lawyers won't because lawyers don't know about self-managed super funds. They're too scared of them. So again, if you come to, um, for example, me at Lightyear Docs or LYD, um, then, you know, there, there's so many opportunities.

I always like to say the reverse is look for the property, um, look, look for the property, look then, can I do it in my self-managed super fund? And th- and that's, that's where we are at the moment. And, you know, it's been probably since 1999. So when we first started talking about self-managed super funds, I'd always talk about the, you know, the tax benefits of it and stuff like that, and I'll go through those, which is fantastic.

But we're always... when it came in, the property was pushing it uphill mainly because in 1999, how it came out and, you know, 50% capital gains tax discount and negative gearing, like, like no one would... Pe- smart people put money into super. Um, but at the end of the day, people, it was just too easy to have like a maximum tax rate of 23%, you know, on any property development or, or property that you have in your own name, plus negatively gearing.

So it's just such an easy way to sell. Uh, but now that's all folded back and it's like, well, now everyone who's got those properties, um, are in a, you know, they're in a bit of an issue because they have to get valued, um, 30 June 2027. Um, and then from that date onwards, um, all their capital gains are effectively tax limited rate of 30%.

So you're sort of stuck there. Um, and I think that that's the big thing because now everything's coming back to SMF or superannuation. Because when you're in the accumulation stage up to age 60, your maximum capital gain is going to be, um, 10%. Once you're over 60 and you take, um, a pension, and this is internally within the fund, once you're over age 60, anything that comes out of the fund is tax-free, which is fantastic.

If I can get tax-free inside the fund, um, it's fantastic. So you have a look at, let's say we've got a 45-year-old now, um, they use one of our strategies. They've got the unit trust, or they've had enough cash and they go and buy a property there now. So it's accumulate, accumulate, accumulate. Market, markets always go up and down.

I mean, you know, that's, that's the thing. So again, um, they decide to sell it when they turn 65. They're in the pension side, but most of the gain is accrued from 45 till 65. When they retire, they decide to, um, then sell it at age 66 inside the fund. All that capital gain- It's gone. So you actually sell it tax-free.

So to me, it's a, it's a no-brainer, particularly SMSF, and it's just fantastic. Everything is now coming back, um, that way.

Grant, I've been removed from the industry for nearly 20 years now, and-

Shame on you. Shame, shame ...

that's what happened. The GFC happened. But most of the listeners here are not accountants and financial planners.

So just from a practical point of view, can you confirm, uh, there's no requirement for these new things called bare trust to be involved if your super fund's just buying units in a unit trust? The bare trust has nothing to do with it, does it?

No, no, no. So the, the bare trust was a, um, was simply a really horrible thing that was put in place, um, to essentially...

The, the, the main, the main thing, because I've, I've also got outside of SMSFs and into family wealth protection, estate planning to protect a family's wealth for the bloodline. So SMSFs are really good because they're protected from the trustee in bankruptcy. Um, from, um, that perspective is because they're exempt from bankruptcy, they had to create this separate vehicle, which is a trust, to hold the legal title of the property.

Um, and then that would mean that the bank would have limited recourse only as against the property, not against the, uh, superannuation fund. So that's limited recourse borrowing. So that's what that bare trust was for. So that's now been removed, I think from the August 4th or 10th. That's been removed for residential property, and this is an interesting one, I'm not gonna tell you, uh, but not for business real property.

So business real property, um, you can still do commercial through that if you want to do that, and commercial No, that's a no-brainer. Of the one point one trillion that's sitting in SMSFs, uh, at the moment, 110... In fact, I think it's $120 billion is from small businesses like Chippy or a factory owner or, you know, such as yourself, you know, buying your, your suite of offices through your self-managed superannuation fund.

Uh, it's business real property, so it's not caught up in that residential, um, property investment. So you can go to the bank. The bank always is gonna give you a 70% LVR, probably the second tier lenders. So you can put it in, um, and then you gear it inside the fund, which actually can... Believe it or not, you can't negatively gear outside, but you can gear inside the fund.

Um, and then what transpires from that is you'll pay off the interest expense, but with an office or industrial property, you know better than I. I mean, what, what are the sort of yields you're getting probably around anywhere- Well, it

depends if it's metro or regional, but anywhere between, uh, five to eight percent, I'd imagine.

Yeah. So, you know, y-you're getting pretty positive cash flow, but you're getting a little bit of negative cash flow. Um, so, um, you can self-finance again. Um, so you don't need to go to the bank if you've got money in a, in a bucket company or a, um, family trust or discretionary trust, that can actually lend to you.

So that's a good way of extracting money out as well. So when we go down that track, commercial property, um, yeah, we can still, uh, go down that, uh, aspect and it, it works par-particularly well because you'll pay off the bank, but your contributions going into super, which are tax deductible. So, you know, if you've got, if you've got a husband and wife, they can make like thirty-two and a half thousand dollars each a year from their business in as tax deductible.

That goes down to pay the debt, but then you've got that good yield coming in. So if you've got a commercial property or a suite like that, you can, you know, move it ahead pretty quickly. So commercial property's not dead. If anything, it should be, should be accelerated. And remember, at the end of the day, if you're gonna hold that property for a long time, let's say it's a good industrial shed or something, when you turn oh, 60, you're gonna get seven or eights, but seven or eights on the price at the time.

And when that's coming into the pension stage, it's tax-free. So it's the perfect income generator for you at a later stage.

If nothing's changed in 20 years and the, the strategy back then, and I'll just reiterate what Grant said a second time, but effectively, if you're self-employed as a business owner and your self-managed super fund buys your place of business, you can continue getting a tax deduction for paying your own super fund the rent.

You can get capital growth over ten or twenty years. You've eliminated the tenancy risk completely because your own business is the tenant and you don't have a vacancy risk. And provided you commence a pension in the self-managed super fund before you sell it The time when you sell that during pension phase, it's then tax -exempt and you pay a massive 0% capital gains tax.

It, it's like being a tax haven. And, and the other one is that we miss out on, um, a couple of things there is, um, and this is getting a bit more sophisticated, um, is that the rent that I'm paying obviously has to be market value rent. I've got to be careful about that. Uh, but someone like you can do your vals.

Um, but you're gonna get a tax deduction in your company or your entity at 30%, and the maximum tax rate is 15%. So you're immediately got a 15% arbitrage just on that, that rent side. Now, the other side of the equation is, um, we, we can still ne... If we can negatively gear, so residential's out, but if we do get a property, we negatively gear it, that throws, um, our fund into tax losses.

So again, outside, if you negatively gear, obviously they're wasted. But if we negatively gear on commercial property, those tax losses, remember that $32,500 that I said, um, goes into the fund, I've taken a deduction. So out of my, out of my company, I've got a deduction of $32,500 for my super contributions, plus my rent as well.

So, you know, that's, that's gonna drop my tax down a lot. But that $32,500 that goes in, and we call that a concessional contribution because it's tax deductible. When it goes in, and this is the scam that the industry funds do, normally they take what they call a 15% contributions tax out, out upfront. But that doesn't apply to self-managed super funds.

And so when that thirty-two and a half thousand comes in, it's just like rent. And so if I've got a tax loss, I can offset that loss against this income that's coming from my concessional contribution. I, I treat that like the fund's salary, so I'm negatively gearing inside the fund. And n- most people don't know that because with, with...

You're actually accelerating everything. I mean, the whole goal is to have maybe two or three, um, really good properties in there. And, and again, as you said, with that big carrot at the end, you know, with a zero tax bill, yeah, in pretty, pretty good stage.

Grant, just, um, for the listeners who aren't familiar with self-managed super funds, can you just, not, not for 10 minutes, but just for one or two minutes, talk about the maximum number of members you're allowed in the super fund, how they can pool their funds together if they don't think they've got enough money themself to set up one and purchase property?

Yeah. No, look, that's really good. Um, in fact, you're probably the prime example, and you, you well know that retail industry funds You know, how many people can get in there? One. And, you know, the, the, the basics of finance is the more you can pool your resources, the better it is. Um, when you studied under me, um, the, the self-managed super fund at that stage was, uh, limited to four members.

Now, I came up with the idea and started calling it because, again, if you call things something and make it a lot easier for people to understand, then it's okay. So I started calling it a family superannuation fund, and there was alwa-always a bit of a blowback for many years. It's like, "Well, I've got three kids, so I can't put everyone in."

Uh, now they've taken up to, um, six members. So, you know, that's... You can have, uh, mum and dad, um, and then you can have the next generation in as well. Um, but you don't have to have a pooled investment, for example. The, the kids, um, can have their own separate investment. So y- in a financial planning, it's like a wrap account.

So you can have one child who'll have-- They, they could do their, you know, their crypto and, you know, whatever they want, their gold. Another one could do a, um, a borrowing arrangement or have their commercial property, or mum and dad can do their own thing 'cause they're at a different stage in life. So we can run separate investment strategies, um, inside that fund.

We don't have to pool it all together. But the, the mere fact of a family super fund means that it's ongoing and that, you know, when mum and dad lose their capacity, you know, when they're 80, 85, instead of winding that fund up, which doesn't make sense, uh, what will happen there is that the next generation...

So mum and dad, one of, one of the big myths around self-managed is that everyone needs to be a director, which is a load of rubbish right from the start. And that's the first thing I always tell people, is that you can have-- If you've got someone's enduring power of attorney, um, then you can act as a director on their behalf.

So as mum and dad, uh, lose their capacity going to aged care, still ke- you still wanna keep them in there 'cause it's tax-free money coming out. But what happens is they don't need to be a director. The next generation come in and, and look after them from that spot. I mean, from a technical term, it's, the, to start it up, we just need to get a, a trustee, uh, get an accountant.

Um, if you're doing something that you really... If you've got an existing self-managed superannuation fund, um, or, you know, you want to set one up, um, you know, just come and see me. Um, and you can-- I think the best one is [email protected]. That's easy. I've got lots of, um, of videos and that stuff there. Um, lots of, uh...

Follow me on YouTube, just @GrantAbbott. Uh, but you can actually, if you go to grantabbott.com, um, you can, um, ask questions there. So I put my books in there, so you can actually ask questions around things or make an appointment to see me, and there's no cost on that appointment. Uh, but look, there's, there's so many opportunities there.

I ran into a, a gentleman who came out. He wasn't young. He was probably a bit younger than you. Um, he came out from the UK with, um, a couple of million He is exactly. He's very, very young. He came out with a couple million dollars from the UK, uh, put it straight into a self-managed super fund. He, he'd read my book, did a bit of self-financing, and, um, suddenly, you know, he, he came back to me and his portfolio had grown up to, you know, like 3 million or over 3 million.

So there's obviously s-some issues around tax on that, but it's not a big issue. Um, and he said, "Look, this is the best... This book, uh, has changed my life." So again, um, I, I, I find in, and you probably too, because you, you've had both fences, I, I find people are either property investors or they're share investors.

My dad, share investor. I was a property investor. So you do do what you're comfortable with. Um, and of course, you can still... You can actually have a business in there, but that's a completely different... That's not for this stage at all.

The, the main point I wanted to get through to the listeners is that m-most self-managed super funds won't have segregated investment strategies for each member.

The majority will be a pooled strategy. So if people have, mom and dad have $200,000 each in a retail fund, they can combine that money together, have a pooled investment strategy, and go and buy property in the fund. Correct, Grant?

Absolutely. So, you know, once you... It, it's, it's quite funny because I'll meet a lot of, uh, people in their 40s, and they've been in the SGC system a long time.

And, uh, then I'll say, "Well, how much you... Where's your super?" AustralianSuper or Cbus. I'll say, "Well, how much you got?" It's like, "Well, 200 and 200." So somebody got 400, and you're going, "What are you doing in a, a retail or industry fund?" I mean, that, that is your capital. That is your money. I pr- Do you know what I mean?

If I stole, if I stole $400,000 and said, "Look, I'm looking after it," you'd be all over my back, you know? You'd be stabbing me in the back. This is your money. Take responsibility for it. And it's funny, I think, um, it's quite interesting because- Uh, back in the, back in the 2000s when we were talking about it, there was a huge shift for the baby boomers to go into self-manage, which was great.

And then Gen X, which is the generation after that, they tended not to go into it. 'Cause I always said, "Look, things go in waves." But Gen X, I think the property, um, you know, the 50%, the negative gearing, they got stuck into that sphere. And I've always said y-you're much better negative gearing inside a self-managed super fund than you, than you were out at that time.

But people just found it too easy, uh, to do it that way. Now they're getting caught. I mean, it's nice people saying, "Oh, well, I'm gonna keep the property. I'll still negatively gear." But some point in time, your negative gearing's gonna wipe out with that 30% capital gains tax. Do you know what I mean? At some point in time, it's gonna turn tax negative.

And, and again, just going back, one of the reasons we need to make sure that we don't... uh, we get a valuation for properties outside SMSF. In, inside SMSF, we don't care 'cause we've got... we're not paying any tax. But outside of SMSF, um, what will happen is that if we sell a property maybe in 2040 or whatever, um, if we haven't got a valuation, um, and we bought it in, you know, you know, 2015, um, and, and this might because it's passed on to the next generation.

If we don't have a valuation at that time, then the government looks at the gain and then treats it on a compounding basis, and compounding is interest on interest. So it means that it's pushing very s- very Crudely, it's pushing all the gain into the 30% bracket. And the other side about it is that i-in most of the jurisdictions, when you sell a property, you might have like a two or three years, so you can use an averaging rule, so it goes over two or three years.

Not in Australia. If you sell a property, once that contract's done, it's gone, then i-if you're already earning money, you're already hitting the 30%, suddenly everything is gonna be 47% tax, and people just aren't registering this at the moment. There, there should be a tsunami going into self-managed superannuation funds at the moment.

Grant, out of the teachings that I learned from you 20 years ago, uh, I'd assume are still the same. We, we've talked about, uh, tax planning using super, we've talked about wealth accumulation here, but one of the big things you used to talk about, the other two issues are, uh, asset protection and estate planning in a self-managed super fund.

Um, I, I'd imagine th-those benefit... You mentioned just before that money in self-managed super funds protected from bankruptcy. In the old days, we had a thing called a reasonable benefits limit. That's no more. What is the case now? How much can you have in a self-managed super fund that's actually protected?

Oh, look, I've, I've seen someone with half a bill. Is that enough for you or...?

So the, but y-you-- the old reasonable benefits limit, it was like the pension RBL was like a million each. That's all gone.

That was gone in 2007. So, um, the, uh, Bankruptcy Act Section 116, basically, uh, this is an interesting one, is that, um, all your super when you're in the accumulation stage, which is up to the pension, um, and, and I'll, I'll play it out, effectively it's protected from bankruptcy.

Once, once you start, um, because pension's like income, so your trustee in bankruptcy, i-if you're able to access it once you're age 60, they can take out, like they can access your pension or that becomes part of your income. But some strange quirk, you can live off lump sums because once you turn age 60, you can say, "Well, I don't want to do a pension.

I'm gonna just take lump sums," because they changed those laws in 2007 as well. So you can just... I could take out, I could be in the middle of bankruptcy, I've got like a $6 million fund, I could pull out $500,000. My trustee in bankruptcy can't touch it. I could go on a world holiday. You know, it's just

crazy.

As an a-asset protection measure, Grant, uh- Is there still any place for a reserve in a super fund or is that no more?

Um, look, the, the commission's got a bit wonky on it 'cause you could shift things around a bit. So it's never been tested. Um, it's still, still there. Uh, we de- we definitely use contributions reserve still.

Um, so I think it's a case by case. So a, a lot of ones, um... The other one is the estate planning. Uh, one of the things you've, you've got to look at is particularly when you've got property, so you've got big lumpy stuff. Um, so I've got one client at the moment, wife died. He, uh... wife died, um, three years ago.

She's got 25 mil, he's got 65, and they've got a lot of property areas that they want to develop and all that. So she's died. We're gonna have to look at the properties inside the fund and choose which ones come out. Now what we'll do is we choose it, and then we'll put it into a family protection trust, into a trust again, because we need to have protection.

You won't put it in their own name. So again, um, we, with the exit strategy, it's important to talk to people such as yourself, is that, you know, if we do have to pull it out for one reason or another, um, then, uh, with that perspective, uh, what, what, what are my exit strategies on the property? But that's like, do you know what I mean?

That's like anything. The worst case, you can always pull it out, you can buy it out, you can do whatever you want.

Look, one of the, um, you know, I, I did actually lose a l- most of my money in my self-managed super fund in the GFC in 2008 share trading, and I, I carry forward those losses, uh, which are still there.

But, uh, one of the things I, I did do is I still use my super fund as an estate planning vehicle and got a tax deduction for ongoing term life insurance, uh, income protection with a two-year benefit period. And, um, a super fund is a very good insurance vehicle as well.

Oh, absolutely. It's a no-brainer. And again, family side is that if you've got, um, you know, mum and dad, you've got, you know, kids who are in their 20s and 30s, why not get them a life and TPD policy of a million bucks?

What's it gonna cost? Like, $500 tax deduction. Uh, if something happens... Because if something happens, then you're gonna have to use your super to, to finance them for the rest of their life if it's TPD. Um, or if it's they, they've got children, you know, you're probably not gonna see the grandchildren again.

Whereas if you've got a, a nice... In fact, I'm just doing one with a client. Um, uh, dad died and, uh, they're about to get $9.7 million, uh, in their self-managed. So, we need to structure that for that one. So the, the best thing to do is go for rope, um, learn the ropes, um, and then, uh, from that perspective is really start to look at it.

So, one of the ones that I wanted to leave your listeners about is that this is, uh, one of the strategies that we used to use, uh, before, and I'm sure you probably remember it, before there was limited recourse borrowing. So, what we can do is, um, there's ability to put, uh, residential property, and so I'll, I'll go through it and I'll paint a picture for you.

And again, if you're interested in doing this, you know, come and see Andrew and we can have a ch- you know, come and see me. Best thing to do. Best thing, like, ever is just to Find a property you want, and then we can look at should it be an SMSF, should it be a family protection trust. Anyway, so what, what we have there is we can have these things called, um, I talked about the in-house assets, and remember, you can't have more than 50%.

There is one exception, and it's called a 1322C trust. Um, and that's, that's something that is, um, that I and all my entities, whether it's, uh, myself, my self-managed super fund, my trust, my business company, anyone can invest in one of these trusts. So it's a fixed trust, so it's not gonna be caught under the government's, uh, trust taxation rules, so that's a good thing.

Um, and then what will happen inside, um, uh, that trust, we can buy residential property. So we're allowed to do that. Now, I ha- now you're thinking, " Wonderful." No borrowing, that's the only problem. So n- so now we're gonna play around with the rules. So again, this is what we used to do 25 years ago. People just don't understand it.

So what we do is we've got the property in there. We can't put a charge on the property. Um, we can't borrow in there. Um, and so what, what we do there is we need to borrow, so our trust or our individual, on the strength of our balance sheet of our other properties, what we do is we borrow from them to lend on to acquire those units in that unit trust.

So that would then give me a tax deduction. Now, a strange quirk of fate, and we like that, you can't negatively gear, um, into residential property, but... And I think they're gonna knock this out, but the strategy I just told you, you can negatively gear into units that's investing in residential property.

You just can't take a charge. So you need to have a good balance sheet outside. So that's a pretty popular strategy at the moment. Um, and I, I know a lot of, um, uh, I know a lot of, uh, you know, property guys are looking at it. Um, the other one, particularly the advocates, um, the other one on top of that is there's also exception, uh, for it, because generally, I can't transfer units I own, unless they're listed, um, into a self-managed super fund.

So listen to this one. One of the exceptions is if it's one of these 1322C units. So what I can do is I can negatively gear them, but I can also Over a period of time, remember we talked about that $32,500 tax deduction. It doesn't have to be in cash. I can actually transfer units in there. So over time, I'm paying down.

Do you know what I mean? Getting more, more and more bites of that resi property, um, into the superannuation fund. So it's like a really good... It, it's the same as a limited recourse borrowing arrangement, but it's not on the balance sheet of the super fund, which I think is better anyway. Be- because at the end of the day, when you do limited recourse borrowing arrangement, it was limited.

The recourse was always against you anyway, against your family trust, against everything else. So you might as well do it that way, and then you can actually eat it up over time. And when you transfer those units in, you're gonna get a tax deduction. So look at this one. You're gonna get a gearing deduction from the strategy because you're gearing into the unit trust.

So you borrow from the bank, go in there. If you've got an offset account, perfect. But as you transfer those units in, you're gonna get a tax deduction for putting your capital on your property into the self-managed super fund. And then you hold that until you're, you're 60, and you don't pay any tax.

Still called an in specie contribution these days?

Yeah, in specie contribution, but it's one of the ones that are allowed, and it's excluded from the transferring of, uh, related, um, investments in, so it's a no-brainer. And there's a couple other more, more, more sophisticated levels I could go, but I probably don't want to go into a public pro- podcast and talk about those.

I think, I think what I've just given you there is the probably the juiciest strategy that lasts for the next five to 10 years.

And Grant, in your experience, as I said, I've been out of the industry for 20 years, do you see many cases where self-managed super fund trustees put together an investment strategy which allows a very high percentage of the fund's assets in property as opposed to-

Yeah, 100%.

Yeah. 100. 100. Yeah. So you obviously need a bit of cash for repairs and improvements and stuff like that. But, um, yeah, so there's, uh, the commission came out with quite lengthy in, in investment strategy guidelines. Um, so you need to do an investment strategy. The best thing to do, you can... If you've got an SMSF, just jump onto LYD docs, lyd.com.au.

I think it costs you, like, $100. But the commission came out with, um, part of that package is the commissioner's ruling on it, and he talks about that you can have 100% in property, but just be mindful of the diversification risk And that's it. And, and I think things have really changed a lot. Like years and years ago, um, you know, it was like you had to have...

Asset came out, so you've got to have $200,000 to set up an SMSF. Then they bumped it up to 500. Now, they've actually taken away all those rules because, you know, if you've got, you've got a couple of young kids, um, who are, you know, 30, they've got young children, you know, and they've got $100,000 between them, well, you know, why not set up a, a self-managed super fund, um, and then take it down from there.

Look, it's gonna, it's just gonna keep going. I mean, I know, Grant, every week now I'm paying 12% of my staff's wages in super, and it's, it's turning out to be a lot more money going into these super funds and, uh, I think, um, you're in a, you're in a continually growing industry that's just not gonna stop.

Oh, look, I think it's exciting.

The, the main thing is that people, um-

I don't like writing the checks, by the way. It's every

week

now.

No, no, no one does. So, um, and look, um, from that, um, I've, I've actually built quite a, uh, quite a lengthy, uh, paper I've done on SMSFs and property development. Goes into the ins and outs from the technical side.

So if anyone wants that, just [email protected]. Happy to, um, uh, share that. Jump onto my website, grantabbott.com, ask questions, have a look at my blogs, follow me on, on YouTube. Um, and look, I do something every day, and a lot of it is around the asset protection, the SMSFs. But, you know, things are really...

It, it's funny, it's all swinging back to self-manage. So I'm, I'm happy about it because you know very well I've been slogging away at this sector since 1994, and just, I, I think it's fantastic that it's now a shining light on it, and then people are now starting to take responsibility for that 10% that is, um, theirs.

Look, I'd encourage any of the listeners, uh, if anything that we've talked about today doesn't sound like what your accountant has actually told you, there's a fair chance that, uh, your accountant might need more education from Grant. And if need be, we can arrange to put Grant's contact details at the bottom of the podcast here and get your accountant, if need be, to come and have a chat to Grant if you need to implement any of these strategies.

And Grant Can train anyone. Yeah, general-

yeah, general, uh, the-- we're also against that construct as well, um, Andrew, is that a lot of accountants aren't licensed or authorized to, to give advice around self-managed super funds. So, so that's always been working. I mean, and then the problem is the planning industry can do it, um, but one of my big things is, uh, there is a limited license opportunity there for accountants.

So I, I want to train up a lot more now. Um, a-as I said, it's been pretty easy pickings, um, with, uh, you know, the 50% capital gains tax, um, discount and negative gearing. Um, I do remember, um, a little story way back in 2008, right at the prime of GFC, and, and you probably know then it was so hard getting finance at all, and, and that's when you decided to get into real estate.

Uh, but I was, um, I'd just moved back from Vanuatu, um, and moved to... I was looking at moving to Sydney. And, uh, went and had a look at a beautiful property in Victoria Street, Potts Point, opposite the, the Soho, uh, hotel there. Rene Rivkin, who you would have known as a very infamous... Yeah, yeah, he built this, uh, block of four apartments.

Um, the one I had was above Jimmy Lik's, which was a very famous restaurant at the time. Three storey, as you can imagine, like beautiful furnishings and all that. And it was going, um... And it had been passed in at 1.28. Um, and it was like... And, and I, I, I sort of went and said with Amrito, who you know well, was my wife at the time, was like, "Geez, this is really good.

It looks like a real party atmosphere," et cetera. Um, so what, what transpired from there is, um, uh, we were out having a drink down at the Cruise Bar at lunch, and she said, "Oh, go and make a ridiculous offer." Anyway, I called him up. I said, "Oh, um, I'll offer you 950, and I can do a 30-day settlement." And he said, uh, he just laughed.

He said, "I can't take that to the vendor." I said, "Well, you work for the vendor. You have to give them all offers." And honestly, he came back 10 minutes later and said she'll take 960 because she, she was from Fiji. Um, she couldn't get... She was getting caught on finance over there. Her daughter was in the property, who wasn't paying any rent.

Um, so we ended up, um, uh, getting that, and it was a fantastic investment. Um, ended up selling it, I think about seven years later for, um, around about 2 million bucks. And that's what I'm saying is the best time to buy, do you know what I mean? And, and you know it. You know the mo- moment there's- I've

made two offers today, Grant

Yeah, there's a lot of forced sellers, and there's gonna be a lot more forced sellers, so you're gonna get bargains. And then a lot of people don't have the capital, except guess what? They're super, remember. Your super is your capital. Start to use it.

Yeah. So for the viewers, if you're capped out with your, your, your finance broker says you can't borrow anymore, maybe you need to replay this video and, uh, have a look at how much you've got in your current retail or industry super funds because your next purchase might be through a self-managed super fund.

How long does it take to set them up these days, Grant? Is it still only a coup- few days?

Yeah. So it takes, uh, there's a tax office because, again, the... You're in a good position now because they are gonna put in sort of like training and that. So the industry funds are trying to limit it. "Oh, we can't lose our money to self-manage.

People can't do things themselves. We know better." But anyway, um, it probably takes around about five or six weeks. You can... Sometimes you're lucky, you can get it like in three or four days. But the process is to get the deed, get an ABN TFN because it's, because it's a commercial entity, um, you need an Australian Business Number and obviously tax file number.

You then take that deed down to your bank. Uh, they scan it all. Um, and then if you're internet banking, you're suddenly gonna see, you know, the right sup- family super fund. Um, and then it's a matter of working. You know, if you've got kids who've got super, uh, put it all in there and aggregate.

Grant, uh, you are committed.

You've committed your whole life to this industry and, um, I congratulate you because most people get bored and try and Change paths, but, uh, you're an inspiration for all people that have been trained in self-managed super funds, and I thank you for your time today.

Okay. Thanks for that. More enthusiastic than ever.

So again, just, you know, play around. I mean, if you've got... First thing is, is, uh, what, what I hate when I say, "Well, how much you got in super?" And people got a blank face. "Where is your super?" Blank face. It's like, oh my God, you know? Do you know what I mean? There's treasure in there. So go and find that treasure.

But thanks a lot, Andrew.

Thanks, Grant. We'll put your, uh, contact details at the bottom of the podcast and, uh, and I hope that people contact you because it's, you've got such a wealth of knowledge there, not just about buying property, but protecting assets, minimizing tax, estate planning, and estate planning outside of super funds as well.

So thanks, Grant.

Okay, buddy.

Thanks for that. Thank you. Thanks for listening to the Andrew Wright Property Podcast. This is all about building a community of like-minded investors who can share real-life stories, experiences, and collaborate with a view to helping each other. Join us. Get in touch through the link in the show notes.

I look forward to you joining me on the next episode.