Apart from the usual good real estate investing principles such as being close to transportation, shops, schools, parks, etc; we have added a few extra selection criteria for the investment properties to make investments work better and remain safer for superannuation purchases.
These criteria are as follows:
We suggest that one only selects investment properties that have a gross yield of at least 4-5% in the current market conditions. This is because some of the extremely low yield investment properties, while they may have experienced tremendous growth recently, are running the risk of being over-valued.
Properties with minimum maintenance or repairs for long term holding.
Properties with minimum rental vacancy rates and easy to attract a good quality tenant.
Property always in demand during good times and bad times.
Properties with minimum stamp duty and ready to rent with no extra set up cost.
Properties with a purchase price at or below market valuations to avoid difficulty at
Postcodes and property types that allow for SMSF borrowing from banks.
The following properties should not be considered as suitable investment:
A rental property that requires the owner to actively work to generate an income all the time, i.e. some very actively owner managed student accommodation, bed and breakfast, etc.
A rental property whose income is at very high risk of being discontinued by external factors, e.g. Wrapped properties which can be taken away from the owner or put back to the owner by the tenants.
Properties that have a very small market. This requires you not to buy specialised properties or properties with certain commercial restrictions attached to them. Examples of these properties are serviced apartments, holiday resorts, mining town rental properties, rural properties, or properties in small population areas.
Properties where mortgage insurance companies are not willing to insure them, or where lenders are only willing to lend at 80% LVR. These properties usually represent high volatility, i.e. price can drop quite significantly within a short space of time. It can easily be found out whether a potential purchase might fall into one of these criteria by simply asking lenders/mortgage brokers.
We recommend that the purchase price of a SMSF property should leave you sufficient cash reserve inside of a SMSF to cover unforeseen loss of rental income or loss of Super contributions due to loss of work income. Here at Investors Direct we have a range of options to suit buyers of SMSF property.