Background
John and Sarah, both in their mid 40s, wanted to continue to grow their wealth through property investment. After consulting IFS Mentor they decided to join our IFS Mentor Property Mastery Program. It was during their initial session of Discovery and Education that a plan was devised to buy their next property using superannuation funds. IFS Mentor worked with their Financial Planner who set up a Self-Managed Super Fund (SMSF) and transferred their existing super balances into it.
This process took seven weeks, during which they:✅ Established the SMSF trust structure✅ Rolled over their existing super balances into the SMSF✅ Opened an SMSF bank account✅ Developed an SMSF investment strategy in line with ATO regulations
After transferring their super, their SMSF balance was $250,000 approx.
Property Investment Decision
With advice from the IFS Mentor Property Mastery Program we identified a $650,000 investment property in a high-growth suburb that had averaged 6.3% annual capital growth over the past 10 years.
The property generates a 5% rental yield, making it a strong cash-flow investment.
To finance the purchase, they used a Limited Recourse Borrowing Arrangement (LRBA) with a 75% loan-to-value ratio (LVR).
Funding Breakdown
Property Purchase Price: $650,000
SMSF Deposit (25%): $162,500
Loan Amount (LRBA - 75%): $487,500
Stamp Duty & Other Costs (~5%): $32,500
Total SMSF Cash Requirement: $195,000Remaining SMSF Balance Post-Purchase: $55,000 (providing liquidity for fees, expenses & compliance)
Projected Rental Income & Loan Repayments
The property has a 5% rental yield, generating:
Annual Rent = $650,000 × 5% = $32,500 per year
Monthly Rent = $2,708 per month
With an assumed loan interest rate of 7.24%:
Annual Interest = $487,500 × 7.24% = $35,317 per year
Monthly Interest Payment = $2,943 per month
This means their rental income ($2,708 per month) falls short of loan interest ($2,943 per month), creating a negative cash flow of -$235 per month (-$2,817 per year).
How They Manage the Shortfall:
The SMSF has $55,000 remaining cash reserves, which can cover the shortfall for over 19 years if no other income is added.
However, both John and Sarah are employed and their employer Superannuation Guarantee easily covers this shortfall each month, meaning their super cash balance will grow even after the small shortfall.
Given capital growth prospects, they accept short-term negative cash flow for long-term gain.
Projected Capital Growth (6.3% Annually)
With 6.3% average annual growth, the property’s estimated future value could be:
After 1 year: $690,950
After 5 years: $882,630
After 10 years: $1,174,500
If they decide to sell after 10 years, they could realize a capital gain of $524,500 less costs, which may be subject to concessional SMSF tax rates (potentially 10% or less in pension phase if sold in the future).
Long-Term Benefits
✔ Leverages superannuation to build wealth through property✔ Short-term negative gearing covered by SMSF Superannuation Guarantee Employer Contributions.✔ Potential to increase SMSF assets by over $500,000 in 10 years✔ Rental income likely to increase over time✔ SMSF tax advantages enhance wealth accumulation✔ Maintains SMSF liquidity post-purchase for ongoing compliance
Thanks to working with IFS Mentor and investing in the IFS Mentor Property Mastery Program, John and Sarah have successfully positioned their SMSF for long-term growth, balancing cash flow and capital appreciation for a secure retirement strategy.
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