Investing in residential real estate has proven to be a powerful wealth creation strategy for many decades. Property offers consistent and reliable returns, in addition to acting as a hedge against inflation.
The majority of Australians already own at least one property – their own home – and many also own one or more Australian investment properties. Investors typically consider these assets to be part of their retirement plan, intending to live off rental income, or to sell down the portfolio to fund their lifestyle in retirement.
The other major component of Australian retirement plans is superannuation. But superannuation funds are typically heavily exposed to the volatile equities market, which has been known to collapse in value overnight.
Taken together, ownership of Australian property and Australian equities leaves local investors at the mercy of any downturn in the Australian economy. This ‘all eggs in one basket’ approach means Australians are vulnerable to a substantial fall in the value of their overall retirement portfolio, in the event of an economic downturn that impacts both house prices and share prices.
One solution to this problem is to invest in overseas property using a Self Managed Super Fund.
By using your super fund to invest in international real estate, you can enjoy stable rental returns and the potential for steady capital growth, in an overseas market that is fully protected from a downturn in the Australian economy. It’s a smart way to diversify your assets.
Australian real estate is widely considered to be the least affordable in the world, and many economists are warning about the dangers of the Australian property bubble bursting. The Australian economy and housing sector is facing strong headwinds with the end of the mining boom, the slowest wage growth on record, and a housing sector that looks increasingly shaky.
Global investment banks are warning that a crash in Australia’s housing market may trigger a recession this year (2016). Macquarie Bank has forecast a 7.5% fall in house prices, and Credit Suisse has stated that property investment in Australia is currently even riskier than the stock market.
Conversely, the US housing market is entering a new growth cycle, after having already fallen in value by roughly 40% in the wake of the global financial crisis. As such, there has never been a better time for Australians to consider adding American property to their retirement portfolios.
If you already have an existing Self Managed Super Fund, or you’re planning to create one, then investing in US property is a great way to enhance and diversify your SMSF portfolio. A diversified portfolio helps you to manage risk, and provides a smoother and more reliable return over time.
Self Managed Super Funds give you significant investment flexibility. You can invest directly in residential or commercial property using funds you’ve already accumulated in your super balance. And as the trustee of an SMSF you can choose which property to purchase, you have control over the expenses and rent received, and you can decide if and when to sell the assets.
At American Properties, we work closely with our clients to identify and secure high-quality investment-grade properties for their Self Managed Super Funds. We’re passionate about building wealth through SMSF property investment, and our experienced property advisors will help you to develop a successful wealth creation strategy that secures your financial freedom in retirement.
Any Australian may make an all-cash purchase of a US property. In addition, many investors are pleased to hear that they can borrow to finance an investment property through their SMSF. With assistance from American Properties, you can leverage the capital already established in your super fund, and borrow the remainder for the purchase of your first SMSF property.
Loan repayments can come from rental income, from dividend income on shares owned by the SMSF, from interest earned on cash invested by the SMSF, or from member contributions.
This structure allows you to boost the total value of your SMSF portfolio by using the bank’s money, with the deposit for your SMSF property being paid out of your super balance, and not from your personal savings. Setup and ongoing costs are also paid from your super balance, and are tax deductible.
A further benefit of investing in property through your super fund is that by combining the savings of super fund members, Self Managed Super Funds can purchase more properties, or more valuable properties, than would otherwise be the case.
There are strict rules surrounding how the loan and purchase must be structured, and the regulations for establishing and borrowing through an SMSF can be complex. It’s vital to ensure the fund is set up appropriately from the beginning. Our experienced Australian-based SMSF partners are highly proficient in the field of foreign property ownership, and will help you to establish your SMSF correctly.
In addition to assisting you with your SMSF setup, as an American Properties member we’ll also help you to establish the corresponding legal structures in the USA. We’ll assist you in sourcing premier properties and completing the purchase, and we’ll connect you with a world-class property manager who will help to manage and grow your investment over the years to come.
So if you’d like to learn more about diversifying and securing your retirement portfolio by using your super fund to invest in US property, then contact us today for more information, and to gain complimentary access to our exclusive six-part video series.