Property has long been a stable and desirable investment option for Australians, but the question of whether to invest outside of super or within an SMSF is raised often.
And investors are right to consider the different investment strategies available to them and the advantages and disadvantages of various investment methods; there are many caveats and restrictions associated with SMSF property investment and failing to comply could result in a nasty and expensive sting.
Since the introduction of limited recourse borrowing arrangements (LRBA) a decade ago, it has become easier for trustees of SMSFs to invest in property.
But there are considerable costs associated with investing in property in this way and there are still a number of legislative requirements SMSF trustees must consider before doing so.
And there are other risks: for one, SMSFs that are heavily weighted towards the property market could be in trouble if prices collapse or if interest rates rise quickly, especially if trustees have borrowed to invest.
There is also a risk of a lack of diversification if investors focus on one large asset.
On top of this, real estate often comes with its own set of complications. For investment properties, there can be issues with tenants, vacancy problems, expensive property managers, body corporate fees and, of course, the ongoing costs and maintenance associated with owning a property. In addition, there are expensive entrance costs, such as stamp duty, and exit costs, such as marketing and agency fees.
All of this for yields in the order of 3 per cent a year and the hope of capital growth means direct property investment may not be the right investment choice for everyone.
However, these potential sticking points should not deter those hoping to invest in property.
Instead, SMSF trustees should consider reframing their approach to property investing.
The mentality that a portfolio should simply include as many properties as possible is no longer relevant.
Along with the ‘prop-tech’ craze, there are more and more ways investors can reap the rewards of property investing without needing to expose their portfolios to large lump sums of debt or single asset exposures.
This is particularly the case with SMSFs and wholesale investors who have access to a far greater range of potential assets.
Part of the story is about finding new ways to get exposure to property through listed property stocks and property equity and debt innovators.
That’s where peer-to-peer (P2P) real estate platforms come in. They provide a secure, transparent and trusted way for borrowers and investors to interact, and an ability for investors to self-curate their own portfolios.
They allow investors to have small exposures to multiple assets rather than one exposure to a large asset.
What’s more, these P2P platforms allow investors to choose which opportunities to pursue according to their own risk appetite and with their own financial goals in mind.
It is these non-traditional methods of investing in property that may give SMSF trustees the opportunity to realise strong returns.
Many who invest in an SMSF need guidance on non-traditional paths of investment. P2P platforms help make the process smooth, transparent and profitable.