SMSF Property Risks: Downsides of Holding a New Home

One asset, much of a fund

A single property can make up a large share of a fund. That concentrates exposure to one asset, one location and one rental market. ASIC expects an SMSF investment strategy to consider diversification and liquidity as well as likely return. A new home does not remove market or concentration risk. Read the source guidance.

Cash and vacancy

Vacancy can interrupt rent, while rates, insurance, accounting and maintenance continue. A repair or member benefit may fall due before the fund has cash to pay it. A buffer is a planning allowance, not a guarantee, and its size belongs in the fund's wider investment plan.

Construction and builder

A build has stages between signing and a tenant moving in. Delays, defects or a builder's insolvency can change costs and timing. Victorian domestic building insurance has defined protections and limits; trustees should obtain the certificate and have the construction contract and builder checked before signing.

Price and sale

A property's value can fall, and a sale may take time or cost money. Gross rent or an indicative yield omits vacancy, property costs, tax and sale costs. A fund that may need to pay benefits soon should examine how it would meet them if the property could not be sold at the hoped-for price.

How to test the plan

Ask the adviser to model an empty period, a delayed build, an unexpected repair and an earlier-than-planned sale. Ask the builder and solicitor what protections the actual documents provide. Bell Morgan can answer questions about the build and price; it cannot tell trustees that the investment risk is suitable for them.