Bill Nikolouzakis, founding director of Nyko Property, said SMSF investors should be looking for a property with relatively low maintenance requirements.
“The tax advantages of an SMSF investing in property are minimal and the laws governing SMSFs do not allow extensive renovations that change the characteristics of the property,” he told SMSF Adivser's sister publication ifa.
Mr Nikolouzakis said it is also critical to ensure the property will generate a strong yield of at least four per cent, especially if the trustee is servicing a debt.
“This does not mean you ignore its growth aspects, the main factor deciding the success of a property investment; it’s just that yield is more important when bought by an SMSF,” he said.
Mr Nikolouzakis also pointed out that while SMSF investment in residential property increased 17.2 per cent in the 12 months to March 2014, this growth is not necessarily “a disaster waiting to happen”.
“It comprises only 3.7 per cent of total SMSF assets of $558.5 billion. Of total SMSF investment in property, it is non-residential property that makes up 77 per cent of total property investment, at $68.4 billion,” Mr Nikolouzakis said.
“Borrowings, too, remain negligible at $2.8 billion or 0.5 per cent of all SMSF assets.
“When I see these numbers I draw a completely different conclusion. Quite clearly, a growing number of SMSF members want to invest in residential property. They probably know that historically it’s been a sound investment.”