Buying Commercial Property With Your Super in 2026

Jason · 00:00Welcome to episode 285 of The Numbers Game. I'm Jason. I'm here with Nick. And in a change of lanes, we're not going to be bashing the government. We're going to be talking about self-managed super funds. Nick, I'm pretty excited about this example you've got. Why don't you crack in and tell us what's happening?

Nick · 00:15Oh yeah, we are talking about self-managed super funds, but without bashing the government, I will say that the government is forcing us to pay more attention to our super based on some of the suggested budget reforms.

Jason · 00:331896 or?

Nick · 00:35Negative gearing, capital gains, investment property related. So look, the reality is that super, however you do it, is a really good vehicle for asset or sorry, wealth creation.

Nick · 00:53Clearly, if you're like us and you're in your 40s, You 40 yet?

Jason · 01:0039. 39 this year.

Nick · 01:02Okay. You're like Tommy and I and you're in your 40s.

Jason · 01:04So I mean, the grey might, the grey for those on YouTube, yeah, I might look 40 or more, but I'm still 38 and I'll claim every bit of it.

Nick · 01:11Yeah, well look, we're beneficiaries of a system that is gonna really set us up.

Jason · 01:15Yeah.

Nick · 01:16Whether we've done much about it or not, because if we've been in employment for the last 20, 30 years and we've had super going in. So it's a great wealth creator. It is also a great way to minimise your tax if that is a problem for you.

Jason · 01:34Now we're talking.

Nick · 01:34Yeah. And it's— the reason it's a great wealth creator is because the money is parked there for some time, as we know, during accumulation phase, which is when you're putting money into super, it's taxed at 15%. There's some new legislation that could suggest it's taxed at a higher rate, depending on how much money you've got in there, but they're pretty big balances.

Nick · 01:58So a lot of people don't need to worry about that.

Jason · 02:0030% over $3 million?

Nick · 02:01Yeah, and that's indexed. So, you know, you hear people say that, oh, you know, the government's taxing at 30%. Well, it's only the difference between $3 million and what you've got. Plus, second to that, that $3 million number is indexed. So by the time you and I retire and get to that amount of money, who knows what it will be.

Nick · 02:19So, and that's per individual. So you can have a couple, hypothetically. Now, you can't dictate, depending on what you're doing for a job, you can't really dictate how much super your employer pays. It'd be based on your salary. But if you're self-employed, you can contribute super to both yourself and your partner and balance it out and make sure you're being smart about where both people's balances are getting to based on how much money you've got to contribute.

Nick · 02:45So, there's things that you can do. But one of the things that is happening at the moment in our business is a, call it a resurgence because it was very busy, went quiet for a little while, now it's busy again. People wanting to set up self-managed super funds.

Nick · 03:00And the main driver behind that is property. People want to buy property. Now the first thing we say, and we've covered this 1,000 times in this podcast, but SMSF or self-managed super funds is not for everyone. So you need to get really clear on what it actually means to hold an SMSF.

Nick · 03:18And in 90% of the cases, you shouldn't have one, probably more. But if you're hell-bent on buying property inside of your super fund, SMSF, an SMSF is the only way you can do that. So again, this isn't advice to do it.

Nick · 03:33I just wanted to have a look at what something could look like because one of the challenges that a lot of people have when they're retiring that have bought a property inside of their self-managed super fund in the last 10 years is the income just isn't enough to give them what they need to retire.

Nick · 03:50So if I was to put that into an example for you, a million-dollar asset in Melbourne returning somewhere between 3.5%, 4% as a yield. So call that, let's just say it's $40,000 a year. The problem with that is you've got $40,000 a year in gross income.

Nick · 04:09If it's a rental property, you're paying an agent to lease that out for you. Probably paying 5% or 6% to the agent of the $40K. You've got a couple of grand a year in landlord's insurance and building insurance. That keeps going up. If it's an apartment, you've got body corp, you've got compliance, making sure the smoke alarms all work and, you know, the blinds aren't gonna hang young toddlers.

Nick · 04:30So that's $600 a year depending on who you're seeing. So, you know, this can quickly dwindle down to maybe $25 grand. A year. Now you've got a million-dollar asset. Clearly, it's going up in asset value, but you're at the point now where you need income.

Jason · 04:47Yeah.

Nick · 04:47So $25,000 a year doesn't cut it. So what happens is most people need to sell those properties because they need to access that capital to get a better yielding return. You could put that in a balanced managed fund and get 5% or 6%. So you take the million, you put it in a balanced fund, you get 5% or 6% conservatively.

Nick · 05:06You get $50,000 to $60,000. So a lot of people end up selling these properties for that very reason. They need the cash flow. So something that is popular to at least offset some of that cash flow burden is commercial property. Typical scenario you see is mum and dad business, a trade generally, buy a factory, pay that factory off by paying business from their, rent from their business at a market rate.

Nick · 05:33And they've got a property at the end of it. But it's not just mum and dad businesses that can do that. So what I thought would be interesting is to actually grab a real life example of what buying a commercial property in your self-managed super fund could do and why it could be a better solution than a residential property.

Jason · 05:57I like it. I like it. And I think as you touched on, SMSF is ramping up again. As you said, with the changes and just awareness. I also think the age and life cycle of the clients that we're probably dealing with. I mean, me as a 38-year-old and you obviously in your 40s.

Jason · 06:13Jokes. Thank you for mentioning. Yeah. But you know, with the clients that have grown up along with us in our journeys that have joined Future Advisory and Innovate and they've gone along the life cycle of, you know, maybe they were in the startup journey 10 years ago when we were, or 15 to 10 years ago. They've now got mature businesses that are growing, stabilised, making money and then looking what is the next part of the structure that makes sense for me?

Jason · 06:37And if they are renting a commercial property, the natural and logical thing becomes, what if I was my own landlord? And then how do I structure and do it properly? So I think it's fantastic to share a real-life example because I think the storytelling, the examples where people go, whoa, okay, it's a better outcome than I probably anticipated or thought of.

Jason · 06:56And who's the best tenant or the safest tenant? And then landlord-tenant relationship. If you're your own, landlord and you're your own tenant, you gotta, you got a pretty good control over it.

Nick · 07:06100%. 100%. And you know, I think what I would like to encourage people to think about is, yeah, it doesn't just have to be those people.

Jason · 07:15Yep.

Nick · 07:15You know, you could, like super is now becoming a significant part of our wealth, as I mentioned. And if you can't do a commercial property outside of your super fund because it requires a lot of capital from a deposit point of view, a lot of people are leaning on super. Yeah.

Nick · 07:31So a really simple strategy might be to buy a commercial property, sit it there for 25 years, make principal and interest repayments on it. It's generally easy to manage that cash flow because you've got super contributions going in whether you like it or not.

Nick · 07:49So you've got money going in from your employer. You can put more in as we've discussed. So you could effectively buy a commercial property in your 40s, late 30s, give yourself a 25-year timeframe to pay it off. You get to retirement, you've got an asset that's grown and you've got an income coming in without a debt attached.

Nick · 08:10Really good cash flow. So the main difference with commercial property is the cash flow because you get a higher yield. Second to that, which is the big, big game changer, is the tenant pays the outgoings. So all those costs that are associated with maintaining the property are paid by the tenant.

Jason · 08:31Yeah.

Nick · 08:31So your net yield is your net yield. Like you don't pay costs after that. So not only do you get a higher yield in general, some would argue that that's offset by a lower capital growth and historically it has. But you look at the opportunity cost of money, you can probably combat that by using the money over time versus, you know, funding a negative cash flow position on a residential property.

Nick · 08:53So I thought it'd be fun just to have a look at an example. So I did go onto real estate, sorry, realcommercial.com. Very hard to find values of properties on Real Commercial, but I did find one and I found a shed/factory.

Nick · 09:10So basically an industrial property in Shepparton in Victoria, major regional area outside of Victoria. Most people that listen to us would know where Shepparton is.

Jason · 09:20Yep.

Nick · 09:21Purchase price for this unit was $1.2 million.

Jason · 09:24It's a good shed.

Nick · 09:25Good shed.

Jason · 09:26Good shed.

Nick · 09:26But sheds have done— this is the other thing people need to be aware of. Industrial property has done very well capital growth-wise. So I'd love to know what that place was worth 10 years ago, but it'd be nowhere near $1.2 million. The current rent on that property is $5,300 a month.

Nick · 09:42So that's net. Tenant pays that plus all the outgoings. Let's assume an annual rental growth of 3%. Most leases will have a 3% annual rental income increase in them.

Nick · 09:58And let's assume an annual capital growth rate of 3%.

Jason · 10:02Yep.

Nick · 10:02Pretty conservative.

Jason · 10:03Very conservative.

Nick · 10:04Yep. You can effectively borrow 80% of that property inside of your self-managed super fund. If you were to do that in today's interest rates, you're looking at a rate of around sort of low 8s. Pretty expensive compared to a normal home loan and commercial.

Nick · 10:23You could probably get a little bit less than that if you really looked around, but I'm just using rough numbers. So you've got going into your super every year, you've got the rental income or every month you've got the rental income of $5,300 'cause she super owns that property.

Nick · 10:39So the income goes into your super fund. You borrow $960K. The other deposit, the rest of the deposit, which is basically the 20% plus costs, that had to come from your super fund.

Jason · 10:52Yep.

Nick · 10:52So you gotta have, call it 25% of the asset value inside of your super fund, plus a little bit extra to cover if something goes wrong. So this is a reason why a lot of people are doing commercial inside their super fund because that's a big deposit, right? Yeah.

Jason · 11:06So about $300,000, $400,000?

Nick · 11:07It's about $300,000, give or take. So, you know, this might be the only avenue for people to buy commercial property because they might not have $300,000 in cash. So you've got a loan amount of $960,000 at 80%. You've got monthly principal and interest repayments to delete that loan over a 25-year period of $7,569.

Nick · 11:27So you've got $5,300 in rent, $7,569 in repayment. So you're $2,269 a month down. Where's that shortfall coming from?

Jason · 11:43Contributions from your wage job.

Nick · 11:45Contributions. Exactly right. So you're putting that money in there no matter what. So the example that I was looking at had self-managed super fund contributions going in extra every year of $35,000.

Nick · 12:00So to put that into numbers for you.

Jason · 12:03That's mum and dad combined?

Nick · 12:04Yeah, you got a mum and dad or a couple that are collectively earning, call it $350,000. Bit less than that. Now that's not crazy.

Jason · 12:12Yep.

Nick · 12:12That's pretty normal. That's 2 professionals or a professional and a trade. So if you're putting $35,000 a year in plus your rent, you've basically got a positive at the end of the year of $7,700. So that positive would be needed to run the self-managed fund.

Nick · 12:31You've got auditing.

Jason · 12:32Accounting.

Nick · 12:33Accounting. ASIC. Some other little things.

Jason · 12:35ASIC.

Nick · 12:37Whatnot.

Jason · 12:38Yep.

Nick · 12:38Ideally, you've got the ability to put more than that $35,000 in because the one thing that people don't think about when they go and buy properties inside of their self-managed super fund, they generally exhaust their deposit into that property and they've got complete exposure to one asset. They've got no diversification in their fund.

Nick · 12:55So as planners, that's one of the first things we cover is diversification.

Jason · 12:59Yeah.

Nick · 13:00You now, you gotta make sure that not every egg you've got is going into that one basket, because that's not great. So fast forward 25 years. The other thing to remember is the— your super contributions are only going to go up, because you've got to remember indexation or wage increases.

Nick · 13:20The amount we pay in super from a percentage point of view isn't going to go backwards. So this picture should actually start to look better and better. The only thing that would stop that is if interest rates go up. But the reality is you've got a 3% annual rental growth and you've got growth on your super contributions.

Nick · 13:37Plus you've got the ability at the moment, say, to do $32,500 each per annum. So as a couple, you could do $65,000. So if your employer's only doing $35,000 and you've got the scope or the cash flow to put more in, you can put another $30,000 in.

Nick · 13:54Yeah. And you could pay the loan off quicker. Or what we'd probably recommend is to diversify into other liquid investments.

Jason · 14:00Which as a tax strategy as well, we're seeing a lot of people take advantage of that because that extra $30,000 that goes into super as a tax deduction stops you from paying tax at, you know, as high as 47% in your personal name. But you do lose the 15% in the super fund. But I tell you what, a lot of our clients, when we do tax planning across April, May, June, they're much happier putting money into their own super fund.

Jason · 14:22Paying 15 cents to the dollar instead of giving away 47% in their personal name. So again, as you said, self-managed super fund or just super in general is such a fantastic wealth creation vehicle. For sure. And you know, the people that are getting ahead and using it aren't just the super wealthy and the rich.

Jason · 14:38It is the everyday person who has a great plan, who works with a planner and a good advisor and or they're savvy themselves that they've educated and done the research to go, I know that every extra bit I put into super is gonna compound and be worth this much more when I retire.

Nick · 14:54Yep, and it's forced saving. That's the other big thing. Can't touch the money. Can't touch the money. Makes a massive difference. So let's fast forward 25 years. Remember, we're looking at 3% annual property value growth.

Jason · 15:06Yep.

Nick · 15:06So as long as the property does that, fast forward 25 years, you now have an asset worth $2.5 million.

Jason · 15:123%?

Nick · 15:13Yep.

Jason · 15:14Nice.

Nick · 15:1525 years. So it's doubled. We paid $1.2. You imagine what happens if you move that to 5%? Yeah. That asset's probably worth $4 million. Yeah.

Jason · 15:22That's— this is super conservative to not inflate it and still show how it works.

Nick · 15:25So.

Jason · 15:26Yep.

Nick · 15:26So you made $1.3 million from a capital gains point of view. This is the big one. You have annual rental income of $133,000. So that's the $60,000 a year that we started at.

Jason · 15:38Mm-hmm.

Nick · 15:39Going up by 3% every year.

Jason · 15:41Yep. Okay.

Nick · 15:42So clearly cost of living is going to go up. But if you compare that to the cash flow position on a residential property, now what would have happened with that residential property is you would have been negative for a long time and eventually it would have got positive. But there's absolutely no chance that it will be yielding you $133,000 in 25 years' time.

Nick · 16:00So the first thing that does, depending on your situation, but there's a possibility that means you don't need to sell that asset because it's giving you $133,000 net. You've still got the tenants, assuming things don't change from a legality point of view, you've still got the tenant paying the outgoings.

Nick · 16:16So you've now got net $133K a year.

Jason · 16:20And that doesn't include any extra investment income if you were able to put extra shares in. No, you were diversified. So if you're diversifying with a little bit of shares and a bit of cash or—

Nick · 16:29Yep.

Jason · 16:29Yep.

Nick · 16:30Now that's net because the tenant's paying your outgoings. And remember, Jase, we had a 25-year P&I repayment.

Jason · 16:36You've paid it down, paid it off.

Nick · 16:37The debt is non-existent. It's gone. So you've got options, right? So you can say, well, I could sell this property, $2.5 million. I could take my $1.2 million capital gain. Assuming that's the only asset you've got in there, what's tax going to be on that?

Nick · 16:56Zero if you're in pension phase.

Jason · 16:59Sorry, I did the hand signal. Zero. Yes, correct.

Nick · 17:01So you're in pension phase, assuming you're under the cap, the extra tax you've got to pay in super as you a year under your balance cap, which is probably gonna be $4 million in 25 years. I'm just picking a number. So you can say, well, I can take $2.5 million tax-free.

Nick · 17:16I can put that into a balanced fund 'cause I don't wanna be in that property anymore. I don't want the headache of the property. And that $2.5 can earn me 5-6% a year, conservatively.

Jason · 17:27Healthy little retirement.

Nick · 17:29Correct. Or I'm just gonna leave that property 'Cause it's fine, 'cause it's presenting to me or it's giving me $133,000 income every year. No loan attached, no outgoings attached in pension phase.

Jason · 17:47Gold.

Nick · 17:48No tax.

Jason · 17:49No tax. I love it. It's, you know, this is exactly why, you know, listening to this, people would go, it's something that I need to consider.

Nick · 17:58Everyone assumes residential property. And you know, the argument you'll get is that they don't go up as much.

Jason · 18:05Yeah.

Nick · 18:05Well, I'd love, and I haven't done the numbers, but we should do them. If you've got a negative cash flow position of say $15,000 a year versus a positive cash flow position of whatever, and you take that extra money and you put it into debt acceleration or debt reduction acceleration, I reckon that's a safer bet than hoping the residential property market doubles.

Jason · 18:26Yeah, 100%. So if I've listened so far, Nick, and you've got my attention, how does one go from, I'm interested in having a commercial property or property in super? Because I mean, owning a property in Australia historically has been everyone's dream. And if super makes it doable and realistic and within the reach because of, you know, you've squirreled away some money, what are the practical next steps?

Jason · 18:51How does someone go about getting a self-managed super fund set up?

Nick · 18:54Well, the first thing you would need to do, I would suggest, before you talk to an accountant is speak to a financial planner.

Jason · 19:00Yep.

Nick · 19:00Because there's a lot of rules that you need to abide by as an SMSF trustee that you may not be willing to. So never do this alone because I can almost guarantee you will make a mistake.

Jason · 19:14Yep.

Nick · 19:14And that can be significant or the repercussions can be significant. So you need to speak to a financial planner. You need to understand what is involved with a self-managed super fund, not just the legalities, the costs associated. And you need to understand that, is this going to be the best vehicle to get you to your endgame or end goal?

Nick · 19:35Some cases will be, some cases won't. From there, you go see an accountant and then you can start to set it up. But financial planner first to make sure this is for you because this is not for everyone because the thing, there are risks associated. That property might be untenanted for a period. What does that look like?

Nick · 19:51Government changes laws. What does that look like? So there's plenty, plenty of pros and cons. All I wanted to do was help people understand what a strategy could look like buying, paying down and holding and having the ability to hold versus needing to sell because the cash flows are no good.

Nick · 20:09Commercial is something that can do that for you. Financial planner first, then an accountant.

Jason · 20:15I love it. Fantastic. I think for anyone listening at home, if that's caught your attention, the team at Innov8, this is something they specialise in, absolute gurus. So if you want to have a conversation about your super fund in general, insurances, whatever else is going on, or converting that into a self-managed super fund so you can buy yourself a juicy commercial property or a shed in Shepparton, come and have a chat to the Innov8 team.

Jason · 20:38If you have enjoyed listening to The Numbers Game, we'd love a rating, a like, a follow, subscribe, depending on where you listen to your pods. And until next time, just remember, the tenant pays your mortgage during accumulation, but the ATO doesn't tax you in retirement. That's the play.

Jason · 20:53Game over. This podcast is for educational and informational purposes only. The conversations are of a general nature and do not qualify as financial or tax advice. We recommend before you make any financial decisions, you consult a licensed professional. Individuals on the podcast may hold positions in the companies discussed. ---