Hope you don't mind - but I saw this thread and wanted to add a few comments as well:
Re the SMSF: there is a common misconception out there that if you have a few hundred grand, you should go SMSF. Having just gone through that transition myself, I can honestly say that it is not for the feint hearted.
Firstly, the fees. You will need to establish the SMSF and the Trustee - which should be a company, not an individual, as this is required by LRBA lenders. By the time you take some "advice" (by a financial adviser) you will be up for around $695 to establish the fund, $895 to establish the corporate trustee, and around $500 in advice. In essence, the initial fund will set you back around $2,090 (note that these are "real" numbers, so I am confident that they are correct). Basically - write off $2k to set up the fund.
Secondly, you need to administer the fund. This includes tracking documentation, consolidating accounts, and preparing for audits. I use Cavendish for this, and it costs me $2,184 per year, paid in monthly installments. And assuming you are not George Soros, you will also need advisory from time to time (on what you can and cannot do). As an example, I spend a further $2,200 per year on this.
So all up, after you have burnt $2k on setting up the fund, you need to allow another another $370 per month on advisory and admin costs. It is possible to do this cheaper than this, but it depends on how experienced you are at these sort of things (I took the approach that in the first few years I would "pay up" for advice, as I didn't want to make any up-front errors that may bite me in the A later on).
And that's before you even do anything!
If you trade shares, you need to set up a separate account (in the name of your SMSF, with someone like Commsec), and then establish a CDIA (Cash Deposit Investment Account), with someone like CBA. You then need to consider brokerage and bank fees in your equations. I did some rough numbers, and assuming you hold 10 stocks for $40,000 value each (total portfolio of $400k in stocks) then you will be looking at all-in fees of around $5,000 per year, which equates to just over 1%. Clearly this is greater than what you can probably negotiate out there in the market for managed funds (I was paying 0.44% before I switched) so you need to be pretty sure of yourself to pay that extra bit (in my case about an extra 0.6%) for the privilege of managing your own portfolio (essentially, you need to add your own Alpha of 0.60% to beat the funds managers at their own game - not easy to do without increasing your risk profile as well).
If you want to buy property, then it starts getting quite expensive if you don't have the economies of scale in place. For example, to establish a LRBA Trust (a bare trust, as a Limited Recourse Borrowing Arrangement) costs around $1,100. Be careful though, as some lawyers and on-line types quote cheaper than this - because your bare trust has to be relevant to the state in which the property is held as the stamp duty rules differ in each state and if you don't get it right, then that's could be another bite in the A for you later down the track). LRBA borrowing from banks can allow you an LVR up to 80%, but from experience most lenders prefer to max out at 70%. When considering serviceability calculations, keep in mind (a) that most LRBA mortgage rates are between 5.1% and 5.6% at present - which is around 1.5% above what you would usually pay for an investment loan, and (b) banks are now subject to stress test guidelines under APRA's APG223 (refer www.apra.gov.au if you want to see what rules the banks follow) which means they will actually stress test your serviceability to around 7.25%/7.50% as opposed to that 5.1% to 5.6% level. What that means is that low-yielding properties (low net-rent properties) can only be financed through low gearing, such as an LVR of around 50%, so your capital gets chewed up pretty quick. The trick, therefore, is to find stable, high-yield properties that are not rural (i.e. within a recognised metro area, otherwise the bank will limit their lending). Areas such as Albury and Armidale are classic examples (in the latter you can get between 6.50% and 7.00% yield, with around 2% capital growth - but that discussion would be the subject of a whole other thread!).
You also need to keep in mind that SMSFs need to be audited yearly (cost $795) with accounts lodged with ASIC yearly (fee $289).
It all adds up quite quickly, so I would caution against SMSF until you have a decent amount ($400-$500k) and have property aspirations (I don't see the point of doing it if you don't intend to gear it into property).
All that said, there are benefits. If you gear your fund correctly, you can have it pay off properties in around 15 years, which will then generate decent annuity streams for you. If you make the assumption that the long term average deposit rate is between 4% and 6%, then being able to generate an annuity closer to 10% (7%, and geared) is actually quite an attractive proposition. You need to be able to generate an income of around 70% of your current income for your retirement years (if you are currently earning $100k, then that means you need an annuity of $70k) to live at the same standard of living, and if interest rates stay where they are I cannot see many other investments out there that are capable of helping you achieve this.
All the best with your journey Hayden. Don't give up now, just keep plugging away at it (the more you learn, the easier it becomes).
