Property crowdfunding offers a wide variety of investment opportunities. But are they suitable for your Self Managed Super Fund (SMSF )?
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.
When managing your SMSF, it is important to create and implement an investment strategy, that should be reviewed on a regular basis to ensure you are staying within the set investment guidelines.
We've outlined a few important considerations when investing in property via your SMSF:
As mentioned earlier, before you start investing and developing your investment portfolio, it is important to have an idea of how much you want to invest, what you want to invest in, and your attitude to risk. Another consideration is to make note of what you can invest in using your SMSF.
The earlier you start investing, the more time your investments will have to grow and become profitable.
The more regularly you add to your investments and to your investment portfolio, the quicker they can grow.
Reinvesting your returns on your investments can also ensure your returns grow quicker. On the CrowdfundUP platform, we enable you, via your Digital Wallet, to reinvest your returns directly into another investment opportunity on the platform.
When it comes to investments, it is important to diversify throughout your investment portfolio. Diversity can help prevent loss during market downturns, as different investments will react differently to market changes.
For example, diversifying your portfolio with property investments in different capital cities throughout Australia via the CrowdfundUP platform helps avoid downturns that may happen in one particular city, but not another.
The property investment market is constantly changing and it can be difficult to decide a particular time to start investing over another.
The best approach: start building your investment portfolio as soon as you are financially able to.
By building your portfolio sooner rather than later, and spending time in the property investment market, there is the potential to reap the benefits of long-term trends and protection against short-term ones!
Dollar cost averaging is designed to reduce risk, by making smaller investments over time so the risk is spread throughout market cycles.
The CrowdfundUP platform allows you to invest any amount, as little as $1,000, across varying property investment opportunities via the platform, which then can be monitored in the Investor Dashboard.
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 $1000, 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."