Take control of your retirement by building a property portfolio within your SMSF. This guide explores how real estate investments can maximise your superannuation, offering strategies, real-life examples, and tips to retire rich and stress-free. Whether you're in your 20s, 40s, or nearing retirement, it's never too early—or late—to start planning for financial freedom.
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You might not even be thinking about retirement and your super, and what the balance could look like when you actually need to retire.
However, I assure you that the earlier you start thinking about your super, the better it'll be for yourself, especially later on in your 40s, rather than getting to 60 and thinking: Oh my God, I'm not going to have enough money to actually retire, which then means that you're working well into your 70s and 80s, a little older.
In this article, I'm going to share with you exactly how buying real estate in your self-managed super fund (SMSF) could help you potentially get to your goals even quicker.
If you guys are interested in my thoughts, then definitely keep reading.
Now, I can't give you direct advice around purchasing your properties in your SMSFs, but what I can do is educate you around what is possible and what I'm seeing people out there actually do.
When I say people out there, we've got hundreds of clients right now also purchasing in their SMSF, and there's a good reason why.
Again, you're going to have to consider your entire situation properly before you even embark on purchasing real estate—let alone purchasing real estate in a super account. So, you need to do the due diligence, and if you need help, we can point you in the right direction with licensed people that can help you get on the right track.
This article is a very timely because there are more and more people that:
What that means is that you get to 60 or 65, but you have to continue working.
Now, when you sign up to work full-time—which we all just had to—you had this thought in your mind that if you work for about 40 years, you get to retire, and you should be able to enjoy life.
However, what we're finding now, especially here in Australia, is that that dream of retiring and retiring on your own terms at the age of 60 or 65 is actually just a distant dream now.
This is why it's so important that you think about this in your 20s, 30s, and 40s rather than getting to 60s and thinking: Oh my God, I'm not going to have enough money to actually retire, which then means that you're working well into your 70s and 80s.
I recently took a trip to L.A because Spotify flew me out, and we were doing some collaboration work. On my trip, I looked at people who were on the streets, homeless. I looked at how the system was there. I asked a lot of people questions, and I realised that in Australia, we have it really good, and we need to take advantage of having it really good where we can solidify our own wealth.
I'm not saying go out there and purchase 20, 30, or 40 properties to get to financial freedom.
I'm saying that you need to start taking this seriously because what you realise is that we have a really good opportunity here to have a good life. I'm not talking about boats and cars and things like that.
I'm saying you have the option of not having to work in your 70s and 80s, and sometimes we forget how grateful we should be to not be in that position, like most people are overseas.
Let's break down some numbers to understand what the average super balance is and what the dire situation is right now.
I think it's only going to get worse.
At the time of retirement, the average balance for men is $435,000, and for women, it’s about $314,000.
The question you've got to ask yourself is, is the house that you're living in completely paid off, and are you single or part of a couple? Because if you're part of a couple, you pretty much end up close to about $750,000.
Now, before you get too excited and think: Oh my God, that's actually a lot of money, you're going to realise that it's actually not.
If you think about using that $750,000, you need to consider whether your house is paid off. Because if you do have a house and it's completely paid off, then $750,000 there is pretty good. But that’s probably your best-case situation at the moment.
With the rising house prices here in Australia, it's becoming harder and harder to just purchase the property, let alone having to pay off the entire thing in 30 years' time.
Now let's assume the single male has their house paid off, and the $435,000 is invested in shares or Exchange-Traded Fund (ETFs), with an average return of about 4%.
Now, I know that people are going to say: Well, the average return right now is about 7 or 10%, but I'm accounting for inflation as well. So, when you account for inflation being around 3%, your real number is going to be 4% in this case.
Based on that, you're earning $17,400 a year, and you can quickly see how that's not going to be enough for you to live properly. Now, you could say: Well, your house is paid off, so $17,400 divided by 50 is what you're pretty much going to have to use for expenses. But we're accounting for what it could look like in 20 or 30 years if that's when you're retiring. I would say that that's very scary.
Let's assume that you're a single female. It gets even worse, where you're making less than $113,000 a year.
Now, let's say you are a couple, and you're at $750,000. At 4%, you're making about $30,000 a year, which again is about $600 bucks a week.
Right now, with everything costing so much more, do you really think you could survive on $600 a week?
What happens if there's a medical emergency?
You're going to have to dip into that $750k as well, which means that principal is never growing. So, it sits there at $750k, you keep getting some sort of income, being 4%, and if you use that money, then you don't add it to the principal either. The principal will stay the same.
Now, in this situation, you would go: Well, it's still doable. It sounds okay. We could budget well and live on $600 bucks a week if our house is paid off. Well, that's a good outcome, right?
What if the house is not paid off?
Well, in this case, you've got to think about how much rent is going to cost you, and if rent is going to cost you about $700 bucks a week, well, you're already negative. That is why this situation is so dire.
If you have a home loan, and let's say you have a $500,000 home loan at an average of 6%, on average, you're having to pay $30,000 a year in just interest repayments.
You're not considering insurance, the rates that you've got, and of course the principal that you want to pay down as well. In that case, again, you would run out of money.
Do we want a good situation, or do we want something where it's great?
You want to reward yourself, you've worked for 40 years, and now you're like: Well, okay, I've signed up for this. Now I want to retire properly. So, how do we actually do it?
Now, in addition to all of this, you have to consider as well that you might earn a pension, but again, I wouldn’t rely on something like that because who knows what that pension looks like in the next 20 years.
I advocate on this channel for you to take ownership of your situation, taking accountability of: Hey, I'm in this situation because of my own actions.
Now, that might be good, it might be bad, but what you can do is control your own actions, which means what you do today will make a difference in 15 to 20 years.
Knowing that, why would you now rely on someone else taking care of you when you should take care of yourself? So, an option that clients have been looking at is buying property in their SMSF.
Obviously, I've got Australia's largest real estate channel, which means I talk a lot about real estate.
Now, I want you to keep an open mind around what that could look like here in this scenario. So, when you're buying property in your SMSF, there are a couple of rules that you need to consider.
Let's assume you buy an investment property for $500,000 with a 20% deposit, being $100,000 plus stamp duty and fees, about $30,000. You'll need about $130,000 to complete this purchase.
Chances are you probably need a little bit more than that for the bank to even consider giving you a loan.
It's important to note that not all banks can give you a loan.
Also, consider that not all brokers are actually accredited to get you loans for the SMSF. So, if you need help with a broker that can actually get your loan with the right lenders, then definitely reach out to me at ravi@searchproperty.com.au
Now, let's look at this example of real clients, Kevin and Anna, who were in their 40s, and they're thinking about what retirement looks like in 20 years' time.
They've done the numbers and said: Hey, well, I don't think I'm going to get to the goal that I want. Let's start taking ownership and really, you could supercharge your portfolio in less than 10 years. So, think about what you'll be able to do in 20 years.
In this case, they have a balance of about $300,000. They're going to use $130,000 for their first property, and they've signed up for their second property to purchase that one. So, there you go, $500,000 on the first one, $500,000 on the second one.
Now, in this case, the real numbers are the first property is for $520,000, the second property was for $455,000.
Now, this example is from earlier in this year, but I thought it would still be super relevant for you to understand what is possible. Yes, we can still find properties between $420K all the way up to about $700K where all the numbers actually still make sense in these growth areas.
In this case, the asset value here is $957,000, and there's about $50,000 left in the SMSF after the purchases, which means if there is anything in terms of shortfalls with the rent, they can cover that.
In addition to that, if there's any main or any repairs that they need to do, they still have the cash there, and the lenders said yes to them, given they had the cash in their bank as well.
Let's assume 5% growth, being conservative, but that is also accounting for the fact that, on average, real estate in Australia grows at about 8%.
My personal portfolio over the last 11 years has grown at 11%, and for clients on average at Search Property, we're at about 133% annually every year. So, 5%, I'm very comfortable with.
In this case, if they retire in their 50s, their property portfolio in 10 years' time will be worth $1.55 million. In their 6 years, which is in 20 years, it would be worth $2.539 million, and at that point, it should be paid off.
The reason it would be paid off is because:
In this case, if you're just going like for like, this would be a 3X better case than the one above, where they just have the cash invested, whether it's in the bank or whether it's in ETFs, earning about 4% in terms of income.
Now, some things that you need to consider are:
You're going to have property management costs; you're going to have repairs and maintenance pop up. But when you actually put that on a balance sheet, you're going to realize that the gains that you make will far outweigh any of the costs you incur.
We have a severe shortage of property here in Australia, and that's not going to change anytime soon. In addition to that, if you purchase in the right locations, there are low vacancy rates, which means people are hungry to get an investment property.
There are tenants that are wanting to rent there, so you're now providing housing by going and purchasing one of these properties, sprucing it up even, and then providing good homes for people.
As I mentioned earlier, you can't actually use the equity from one property to purchase another. So, a solution for that would be here in 10 years' time.
Those two properties, being worth almost $1.6 million, the debt remaining on that would be about $800,000. The equity in this would be $750,000. So, what they could do is they could sell the two properties, and they would have, then, after all costs and taxes, about $600,000.
Already in 10 years' time, they'll have a lot more than what they would have had by the time they're 60, in twice the amount of time. So, in this case, with the $600,000, they could effectively go out there and purchase four properties and repeat this process.
In this case, the four properties at $500,000 each would be worth about $2 million.
At a 5% yield, you're making about $100,000.
After 10 years, at 5% annual growth, it would be worth $3.2 million, and the 4% yield would mean $128,000 a year.
Now, keep in mind you won't have these houses paid off by the time you retire in this situation. But because they will all be positive cash flow, you're going to be in a strong position where you've got the income coming through, plus you have a larger machine.
This is the part that is very important to understand—your asset base.
By not investing in anything, you're working with $750,000. In this case, by using some leverage and having the right strategy, you have a larger base, a larger machine.
10% growth on $750,000 is $75,000, but 10% on $3.2 million is $320,000.
That is why it is so important that you pick the right assets, have the right strategy, and real estate in your SMSF is not going to be for everyone.
However, you have a couple of options where, by doing this, you could either continue repeating the process, where you buy and sell, or you could just sell all of the properties and say: I don't want debt, I don't want the headaches of tenants, and you'll still end up with more cash in the bank than you would have if you didn't go down this path.
Or, you could go and say, "Well, you know what? I'm going to sell some of those properties, use the cash, and pay down my home," which means now you've paid off your principal place of residence. I might end up with one or two properties, but now you have this asset base that continues to grow and provide you financial freedom and doesn't rely on the pension or on the government.
This is the key here.
We're not trying to just retire; we're trying to retire filthy rich. And filthy rich means that you're retiring on your own terms.
I hope you guys have enjoyed this article. If you need help with any of this—whether it's the accountant that needs to help you set up something like this, or whether it's the broker that needs to help you get the loans—definitely email me at ravi@searchproperty.com.au.
I'll catch you guys in the next one. Thanks, guys!
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
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