How this one system unlocks choice for SMSF property investors

Previously, Australian Taxation Office (ATO) regulations stipulated self-managed super fund (SMSF) investors were only able to purchase pre-existing buildings. According to one expert, that’s all changed.

Raymond Hempstead, managing director at One Contract Property, has revealed his company has developed a ground-breaking system which offers those looking to purchase their property through an SMSF greater freedom with regard to what properties they are able to buy.

Breaking it down simply, Mr Hempstead painted a picture of a property purchase costing approximately $650,000. Traditionally, such purchases are funded with the bank.

However, he explained that in order for a SMSF to purchase the property, the transaction must be turned into a single part contract.

“Someone’s got to fund that process,” he said. “Up until now, if you could find it, that’s the builder. The builder’s actually coming up with the money and he’s funding it and at the back end you pay the $650,000.”

Given the raft of economic headwinds sweeping across every corner of the country, paired with drying new home build data, builders “aren’t in the position of financing those debts.”

Not to fear, however. He revealed this is where One Contract Property steps in and says “if you’ve got a 35 per cent deposit in your super fund, you can now get into that process.”

As part of the process, the buyer selects the property and the builder, but leaves the act of buying the block of land and entering the building contract, amongst others, in the hands of One Contract Property.

So, from the builder side, it stays a two-part contract,” he said, adding “the builders love it because we pay them all their build progress payments. We pay them their build progress payments.”

At the end of it all, the house gets built upon the land, the buyer boasts a brand-new home before coming up with the remaining 65 per cent of the funding “from a T2 lender inside your super fund, and the title gets transferred into your super fund at that stage.”

To date, this system has been utilised roughly 300 times, Mr Hempstead explained.

Given there are around 700,000 self-managed super funds set up across every corner of Australia from Caboolture to Casula, he believes this avenue of investment can unlock a large chunk of financial benefits for those targeting comfortable retirement – which is a super with approximately $700,000 in it.

In Mr Hempstead’s view, while this avenue might not be right for everyone, it’s an important option to have on the table. ”You’ve got a voice and you can choose, you can negotiate with the builder and you can come up with the price with the builder, and you can package that inside your super and make a positive return on it,” he said.

Further exemplifying the savings that exist within investing through an SMSF, Mr Hempstead explained if a buyer were to purchase a $1 million property that generates $2,000 a week in gross rent in their personal name at 40 years old and hold it for 26 years will end up paying “around three quarters of a million dollars in tax.”

“Now, if you hold that in a company, you’re paying about $400,000 in tax.” That figure drops to $200,000 if that property is within an SMSF.

Furthermore, buyers “holding that same asset in their own personal name or in a company or trust, even when they hit 65 and retire, they’re still paying tax every day after that.”

“Whereas, if it’s in a super fund, once you retire, in most situations you’ll actually pay zero tax and also zero capital gains tax if you sell it at the back in retirement,” he added.

For those potentially still weary, Mr Hempstead insisted the process “is clearly defined in the ATO’s public product ruling.

In essence, what One Contract Property’s system does, in Mr Hempstead’s words, is “give people choice.”

“The way I like to promote it is however you can invest outside of super, you can now use that same model and invest inside super,” he concluded.

‘For more information, visit https://www.onecontractproperty.com.au/’

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