Property crowdfunding offers a wide variety of investment opportunities. But are they suitable for your SMSF (Self Managed Super Fund)? In this blog we take a closer look.
While SMSFs may purchase property, there are a number of rules which the fund must comply with before doing so. It may be arguable whether or not a crowdfunded investment (which will usually be an investment in shares in a Company or units in a Unit Trust) is a "property" purchase, however, we recommend that you consider investments via CrowdfundUP in the same manner as direct property investments.
To be able to purchase property via an SMSF, the investment must first satisfy a number of criteria. These are (courtesy of the ASIC website):
If these criteria are met, your SMSF may make the investment.
Making an investment via a SMSF is again subject to a series of eligibility rules; most importantly, an investment must be in accordance with your SMSF investment strategy, and must be solely for the benefit of the members of the SMSF.
Apart from the specific rules governing SMSF's, we recommend that you consider the following key factors:
Investments listed on CrowdfundUP will carry varying degrees of risk, for example, construction projects will generally be more risky than investment projects. Make sure the level of risk of a project is suited to your SMSF and adopt a conservative approach.
The term of investments listed on CrowdfundUP will also vary: from 12 months to several years. Again you should ensure that the term of the investment is consistent with your fund's investment strategy. You should also note that crowdfunded investments cannot be sold or traded before maturity, so should be considered as "illiquid" investments.
There are several advantages of property crowdfunding investments for an SMSF.
Investment amounts with CrowdfundUP start from as little as $100, so an exposure to property can be gained without the need for the large capital commitment normally required. This may be particularly attractive for smaller SMSFs where an outright property purchase may cause a lack of diversification in the fund.
While an SMSF may borrow to purchase property, the lending arrangements required are complex, and costly to establish and administer. Because of the smaller investment amount with CrowdfundUP there is generally no need to borrow in the SMSF, nor are there any costs to invest.
The smaller investment amount and variety of projects also allows for greater diversification, not only between broad asset classes like cash, shares and property, but also within the property asset class itself. So for example you may diversify between property types, location, relative risk and term.
Investments listed on CrowdfundUP do not require ongoing administration, or incur additional costs; unlike a direct investment property which often has outgoings such as rates, utilities and repairs and usually require regular administration.
Crowdfunded property projects provide SMSFs with a new pool of attractive potential investments which offer low investment amounts, low costs and diversification benefits. Be sure to check that potential investments listed on CrowdfundUP meet the rules governing SMSFs generally, and the rules of your specific fund. It's more than likely that CrowdfundUP will be able to meet your needs.
"Any advice provided on this blog is general in nature. Readers are urged to seek their own professional advice before making decisions."