Wednesday, 14 September 2011
By: Staff Reporter – www.spionline.com.au
A draft ruling by the Australian Taxation Office has given self-managed superannuation fund members the ability to use money from inside their fund to renovate their property.
Previously, the ATO said SMSFs could not use money from any source to improve property, however, under the draft ruling they can potentially renovate to improve the value of the property.
Charterhill Group Chartered Accountants chief executive officer George Nowak told Smart Property Investment that the draft ruling would ultimately make real estate a more attractive option to the $420 billion SMSF sector.
“We have been in support of this outcome since the 7th July 2010 when the remodelled legislation was delivered. It is an absolutely positive move,” he said.
According to Mr Nowak, the drafted legislation clarifies some nuances of error in the original legislation.
“The ATO understands that the future buoyancy of the property market will be heavily dependent on SMSFs’ investing in property as well as providing rental occupancies for younger people.
“This new drafted legislation, which will almost certainly become law, addresses everything everyone I have spoken to in the industry has been scratching their heads over.”
But while SMSF trustees will be able to renovate using money within their funds, borrowing to renovate will remain prohibited.
Ken Raiss, director of Chan & Naylor, told Smart Property Investment, the prohibition of borrowing to renovate property held in a SMSF was very difficult to understand.
“Hats off to the ATO – a lot of good things have come out of this draft ruling,” he said.
“The fact that you can now renovate, with non-borrowed money, is very good.
“But the main problem is that the ATO’s draft ruling neutralises or diminishes the sole purpose test which is to provide retirement benefits to members.”
With the ability to manufacture capital growth through renovation a big drawcard for property investors, the same capacity should also be available through SMSFs, he said.
“If you’re looking to provide retirement income you should be allowed to maximise it.”
Why is it that some homes sit on the market for a year while others sell like hot cakes? Frustrated sellers will blame a bad market, while a good real estate professional will tell you that many times, a slow sale is often attributed to the listing price.
If a home is overpriced, buyers will stay away. But, if the price is competitive with similar homes in the area and ‘shows’ better than the competition, it will have a better chance of being sold quickly.
The secret to pricing a property correctly is perfecting the technique of comparative shopping.
Although comparing houses with different styles, square-meteridge and locations is challenging, it’s still one of the best methods to use when determining a home’s market value.
A home’s worth is most effectively evaluated through a process known as Comparative Marketing Analysis. Taking a look at assets, such as a swimming pool, bigger than normal living spaces, a fantastic view, adjacent city parks and other attractions, your home can then be compared with similar properties that have sold in the area within the last six months.
Typically, the agent is able to recommend a realistic price range that will ensure you top dollar and a reasonably good response.
It is suggested that factors such as the amount of time needed to sell your home can alter the agent’s price recommendation dramatically. If you’re under time constraints because of unexpected job changes or moving agreements you’ve made on another property, this will narrow your chances of selling the home for top dollar in the market.
Assuming you have sufficient time to market the home, here are a few small steps you and your agent can take to finding the right price for your property.
* The best comparisons can be made with similar homes that have been sold within the last 45 days. Any longer and other factors, such as the economy, could cloud your view of how much your home is really worth.
* Another good benchmark is to review the selling prices of homes that have just been sold and are pending closes. This is information that most real estate agents should be able to share with you.
* Being open and honest about what you see as the home’s greatest strengths and biggest weaknesses will also help an agent get a better feel for how to best evaluate (or assess) and market your home.
* Think of your home as if you were the buyer. If your home is listed at the right price, you’re well on your way to a speedy and fruitful sale.
* When evaluating development sites you need to remember one key thing – always leave enough in for the other guy. Development is a business, based purely on the numbers, cash on cash return, ROI, annualized return are all important as are risk profiles etc. If you have a property with development potential, you need to start with the end in mind. What is the end product? How much will it sell for?
This figure can be derived by applying the previous process. Once you have established what your end product is and that you have a market simply subtract all expenses. This is where most people go wrong, they are simply not aware of all the costs, more oten than not they under estimate by hundreds of thousands of dollars. This is obviously extremely dangerous and no development should be entered into lightly.
Thorough research and analysis is required, as well as the project needing to be driven hard and on time. As time is money in development and time blow outs will eat into your profits.
The best thing to do is seek professional advice. The team at Plan Assist will help you with any aspect of your real estate needs, visit www.planassist.com.au