Banner_Beginner’s guide to SMSF commercial property investment

Beginner’s guide to SMSF commercial property investment

You may not be familiar with investing in commercial property with your self managed super fund (SMSF). If so, you’re not alone. Property investment as a diversification strategy requires knowledge of the commercial real estate market and access to invest that most people don’t possess. In part, the sophisticated level of investment knowledge and the high entry point can make investing directly into commercial property seem more complicated than it’s worth.

The truth is that investing in commercial real estate through a well-respected managed fund is not hard to do, and the investment threshold is far lower.

We have put together a beginner’s guide to SMSF property investment so that you (SMSF trustee) can have a more productive conversation with your financial adviser about this diversification strategy.

A strategic self-managed super fund investment

First, you must have an investment plan in place for any self managed super fund. A trustee is required to “give effect” to the chosen investment strategy, which could be simply allocating a percentage to each asset class approved by your trust’s deed. The sole purpose of your superannuation fund is to provide its members with a retirement benefit or to their dependants if a member dies before retirement. Your SMSF’s investment plan must reflect that goal. Additionally, an investment may need to provide the cash on hand (liquidity) to meet pension payments.

Commercial property investment may help you achieve your SMSF portfolio’s objectives. In fact, MoneySmart recommends super investment options, from conservative to growth, that include investment property in the mix.

Moreover, commercial property investment is a solid way to level market fluctuation risks. A commercial investment property may provide a regular distribution from rental income underpinned by long-term leases typical of this type of tenancy. Note that a self managed super fund could choose to buy property directly (i.e. an office, warehouse or a retail space) or invest in a commercial property fund as examples.

Before you contact a commercial property realtor, it’s important to understand the differences between buying a commercial property with your SMSF and investing in an unlisted commercial property fund.

Your SMSF wants to invest in commercial property — now what?

To be fully aware of your options, speak with your financial adviser. Centuria Capital has online resources available to learn more about unlisted property funds. For now, we can focus on the basic differences between buying commercial property and investing in a commercial property fund.

Price considerations

You can expect an outlay of up to millions of dollars for a quality commercial investment property. Conversely, for an SMSF to invest in a fixed-term unlisted commercial property fund the entry point can be in the tens of thousands.

Management structure

An office building or industrial complex needs a high-quality tenant. They expect the property fit-out to be well done, and have a professional management team available for building and grounds maintenance and issues. When your SMSF buys a commercial property, you’re responsible for leasing it and maintaining it. This level of real estate savvy takes years to develop. Alternatively, commercial real estate fund managers can be tasked with selecting properties with a high capital gain potential, performing the due diligence and managing the properties held in an unlisted property fund.

Key takeaway

Unlisted commercial property funds remove barriers to high market value property as well as the hassle of managing the building and grounds.

SMSF commercial property investment dos and don’ts

A few dos and don’ts to commercial property fund investing to consider include:

Do: Learn about the types of property funds your SMSF can invest in such as office, industrial and healthcare commercial property funds.

Do: Speak with your financial adviser about any investment strategy for your SMSF.

Don’t: Shy away from asking a reputable commercial property fund manager about risks and weigh them against your SMSF sole purpose.

What to look for in a well managed commercial property fund

Commercial property funds are managed by fund managers. You should speak to a licensed financial adviser you trust to get a sense of the company itself.

When you perform your due diligence, find out if the fund is hands-on with in-house investment property managers or if they outsource this function, compare their portfolio’s historical performance with others and take into account the fund manager’s performance throughout their history. You are looking for a proven track record, market expertise and a commitment to client service.

Interested in hearing about future unlisted property funds?

Please complete the form below to register your interest in receiving updates on future unlisted property fund opportunities.

You are now leaving Centuria Australia
and entering Centuria New Zealand.