A new trend for self-managed-super-funds (SMSF) in Australia to grow their portfolio is through alternative capital investments. The baby boomer generation is rapidly reaching retirement age. Hence, there is widespread realization that your SUPER savings will not be sufficient to provide a decent standard of living. As a result, the SMSF industry has seen massive growth over the last 10 years.

Sophisticated investors are seeking SMSF diversify portfolio options rather then keeping large amounts of cash in the bank. Furthermore profiting the banks and not your SUPER account. Because deposit rates are at historical lows, usually turn to property as a safe asset class.

SMSF Diversify Portfolio

Investor who have taken control of their SUPER and have established their own SMSF. Maybe looking for an alternative bricks and mortar investment over the medium term, and certainly providing an income and return on your capital.

Population growth is the main driver of the economy. People need housing and someone must fund and build it to keep up with population growth. Including the demographic shift in apartments as the preferred choice of housing. SMSF property investment has been the main driver for establishing DIY funds because industry funds have not delivered acceptable returns.

Banks have significantly retreated from financing property development, especially multi-storey complexes. Furthermore, any senior debt component has strict lending criteria such as presales. There is no shortage of land or refurbishment opportunities. Property developers are plentiful to build housing and meet the demand. Investors are stepping outside of traditional assets, therefore seeking higher returns via alternative investments. Property development offers both a secure asset class and an alternative SMSF portfolio diversification strategy.

SMSF Property Investment

Smart money will always find new ways to invest. Shadow banking or peer-2-peer lending is gaining wide-spread momentum as overseas investors, SMSF and institutional funds are taking the place of traditional banking and funding SMSF property investment into residential and commercial projects and community projects.

SMSF have been carrying on property development business activities since SMSF came into existence. There is no express prohibition on SMSF’s undertaking property development business activities. Provided such activities do not breach the provisions of SIS Act 1993 or the SIS Regs 1994 or ITAA97 1997 or the ITAA36 1936.

Without the SMSF being the actual property developer, its an arms length transaction and an alternative way for SMSF to invest in property. No need to take development risks, deal with council zoning issues and lack of experience of being a property developer. The SMSF can participate in the financing of the development through ResiBonds (Residential Investment Bonds). The Bond is a loan (debt security) to the development company. The SMSF property investor receives monthly or quarterly interest (coupon rate). The capital is redeemed at the end of the term or maturity date.

ResiBonds funding instrument               

For investors seeking an alternative property investment option for their SMSF. ResiBonds offer a new alternative method to funding property development for small -scale projects.

  • Typically issued over the medium term of 2-3 years’ and the ResiBond is structured as a debt instrument
  • A fixed rate (or coupon rate) is applied paying income to the Bondholder until the bond is redeemed
  • The principle capital is repaid including all interest owing and the ResiBond can be redeemed early
  • The ResiBond can be converted to equity if agreed in the terms and conditions
  • A registered equitable mortgage can be called upon in the event of default by the issuer. The ResiBond can be secured via 1st or 2nd mortgage

Consider all options

SMSF investors must carefully consider all options and risks when seeking to diversify their portfolios through alternative property investments. It is crucial to consider your stage toward retirement, your health and financial status when choosing investment opportunities. Above all, seek independent financial and taxation advice to make an informed decision.

Accrutus Capital is a business advisory firm facilitating alternative capital for Australian businesses and opportunities for SMSF to diversify their portfolio for maximum growth.


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