How much money do i need to setup a Self Managed Super Fund? (SMSF)

There is no real right or wrong answer to the above statement as it will differ depending on the Fund, how many members are involved and what the investment strategy is. There is a common rule of thumb around accounting and financial planning circles that says around about $200,000 is the figure required.

I tend to approach it a little bit differently and I think it really comes down to the Fund being setup and how it stacks up versus your existing arrangements.  It’s always worth reviewing what fees you’re currently paying in your existing fund and if you’re doing it together with a spouse or  family members quite often the costs can be competitive. This can be compared against the establishment and running costs of the new SMSF.
A Self-Managed Fund can have up to four members each with their own member balance. The Fund also requires at least two individuals be trustees or a company to act as trustee more commonly known as a corporate trustee. If four members are all removing their individual super account admin fees and running costs this can start to result in cost savings.

Another really important factor is the reasons behind why you are setting it up. If it’s to purchase property or potentially borrow to purchase property via a limited recourse borrowing arrangement then that is something that can only be done through an SMSF. In certain circumstances the ability to purchase a property through your fund might be worth the extra cost involved in establishing your own fund.

If you are borrowing to invest in a property then again you need to weigh up the extra fees against the ability to leverage the purchase of a property.  As an example if you have $100,000 today in super to purchase a $300,000 property then you have a loan to valuation ratio of 66.6%. This means you have $300,000 of growth assets working for you with a $200,000 loan. You could then direct mandatory SGC payments, rent from the property and any other contributions towards meeting the repayments.

It’s important to note when viewing any potential property purchase through super you need to be aware of certain rules whether borrowing or not. Firstly you cannot live in this property nor can you allow a family member to reside there and pay you rent. Also you cannot develop properties and effectively run a business through your fund. If either of those options were the main reason you were contemplating it then you’re better off to forget using super as the vehicle to do it.

It’s not all bad news however you can feasibly purchase a business premises to run your business from (known as business real property). In this scenario you can effectively pay rent to your super fund rather than the landlord. It may also be an avenue for you to obtain business premises that would not have been possible for you outside of Superannuation. You can of course also purchase commercial property for someone else to use for their business and have them pay the rent into your Fund.

In summary there are a range of reasons to have a think about Self-Managed Super as an option. It’s not for everyone but please feel free to get in touch to discuss it if you’re interested and I would be happy to run through the specific goals for you and your family.