HORROR means different things to different people.
For some, it means giant spiders. For me, it’s the copy of the Wolf Creek DVD that lurks on my living room shelf, unopened because I’m scared to watch it.
Horror for a real estate investor usually involves losing money, and lots of it.
Luckily Australia escaped the worst of the GFC where house prices in parts of many countries halved in value.
However, fears are growing about a new horror at home. Not a massive crash, but experts are worried that many people may come financially unstuck after chasing elusive investment returns through property in their self-managed super funds without doing their homework.
More than 900,000 Aussies have money in SMSFs, and there has been a big push by property promoters in the past year to get people to borrow money within their SMSF to buy houses.
This threatens to spark a fresh housing bubble that will push houses further beyond the reach of younger Aussies, but also risks trapping older pre-retirees in a nasty financial situation.
I was previously a big fan of holding property in a SMSF long-term to enjoy enormous tax benefits, but that changed when the Federal Government moved the goalposts earlier this year, and now an unpleasant tax bill may eventually bite those who buy property in super.
These days, I’m scared that many Australians – still spooked by the share market collapse five years ago – will use super to pump their life savings, plus borrowings, into bricks and mortar and be burnt badly if house prices fall, interest rates rise, or they get bad advice from a so-called expert and buy in an area with poor growth prospects.
Self-managed super is an extremely complex area, where one mistake could result in you losing almost half your nest egg in penalty taxes. It’s not something that people should see as a vehicle to pile into property.
Retirees cannot sell part of a house to free up some retirement cash. And if Australia does get hit by a housing downturn, they may still have loans to pay on properties that have tumbled in value.
With good planning and a sound strategy, property in super can work well for some people. But just make sure it doesn’t become your personal house of horrors.