SMSFs warned against residential property

Self-managed super funds (SMSF) investing in residential property should look for "impartial advice" rather than falling for those looking to make a sale, an accountant and financial adviser firm warned.

HLB Mann Judd Sydney's wealth management partner Michael Hutton said many trustees may have forgotten that SMSFs are meant to fund retirement.

"The basic fact is that residential property investment, particularly when the market is close to a peak as it must be now, has to be a long term strategy to get the capital gains sought. The rental yield on such properties, particularly after expenses, is often very low," he said.

"Where gearing is involved, major cash flow problems can occur - particularly for those drawing a pension from their fund or expecting to draw a pension within the next several years.

Hutton also said there is a tendency to gear up within an SMSF to buy residential property, but retirees should be debt-free and have assets that generate funds to sustain their retirement.

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"Trustees of SMSFs also need to be mindful that upon the death of the last member, the fund must be wound up.

"Illiquid assets such as property take time to sell, while transferring a property to beneficiaries in-specie will incur stamp duty and conveyancing costs," he said.

Hutton also warned younger trustees to think twice before holding a residential property in an SMSF rather than their own name and should be aware it is a long-term investment.