Is using an SMSF for property a million-dollar mistake?

·28 min·2 clips

Financial advisor James O'Reilly says buying property in super is a million-dollar mistake after crunching the numbers.

This episode of The Money Puzzle challenges the popular strategy of buying property through a self-managed super fund (SMSF). Host James Kirby interviews financial advisor and podcaster James O'Reilly, who argues this approach is often a costly mistake. O'Reilly conducted a detailed numerical exercise, comparing an SMSF property investment to a standard high-growth super portfolio. He factored in total returns, including capital gains and rental income, using long-term averages. A critical finding is that SMSF property loans now carry interest rates 0.75% to 1% higher than standard home loans due to major banks exiting the space after the Banking Royal Commission. The 15% tax rate inside super also diminishes the power of negative gearing benefits compared to personal ownership. O'Reilly concluded that, for a 40-year-old, this strategy would likely leave them over a million dollars worse off over 15 years. High upfront transaction costs, ongoing SMSF admin fees, and property holding costs create a significant performance hurdle. He notes the strategy requires an investor to "hit it out of the park" with an exceptional property just to match a standard super fund's returns. While property can offer less volatility during market crashes like the GFC, O'Reilly argues this non-financial benefit washes out over a full 15-year market cycle. Critics of his analysis argued that savvy investors using buyer's agents can outperform long-term property growth averages. O'Reilly acknowledges this possibility but stresses it demands relentless due diligence. He shares that many SMSF property holders he meets bought underperforming assets, like a Melbourne apartment stagnant in value for 13 years. The episode also briefly covers ethical investing, noting a study that 90% of Australians expect their advisor to consider it, and the ongoing challenge of stamping out bad behavior in the financial advice industry. The tone is conversational and educational, featuring a deep dive into comparative investment maths with a skeptical lens. A listener question about opting out of compulsory super when balances are very high is also fielded. Property investing enthusiasts and SMSF trustees considering property would find this episode highly relevant. Listeners solely interested in ethical investing or general financial news might find the core analysis less applicable.

As heard by us

A blunt, numbers-first caution on buying property inside an SMSF.

Buying property through an SMSF gets a hard-nosed workout here, with James O'Reilly arguing that it can be a very bad idea for most people, most of the time.

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Why you'd press play

You want the SMSF property case tested, not admired.

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