A 32-year-old in Australia shared how he turned a modest $40,000 superannuation account balance into a $2 million superannuation fund.
According to RealEstate, Eddie Dilleen started buying properties 14 years ago while still working at McDonald's, and today he has built a real estate empire with more than 100 properties worth nearly $65 million.
(Image source: RealEstate)
Most of these properties were purchased using loans from the rapidly appreciating portion of the property he had previously purchased, a process known in the banking industry as leverage.
He also bought most of his properties in areas where rents were higher relative to mortgage costs. This means that he spends very little of his own money on these properties and can continue to get approved for a loan for a new home.
Growing up in public housing in western Sydney, Dilleen now works as a buyer's agent, and he has also revealed that he has used a special feature in his superannuation policy to help build his wealth empire.
This helped him increase his superannuation account balance to $2 million.
He said he was inspired to take action when he realised he only had $40,000 in his retirement benefit account a few years ago.
"In my opinion, if you buy properties in the right area, they are appreciating much faster than any superannuation fund, and it doesn't make sense to put money there."
(Image source: RealEstate)
He decided that the answer was to set up a self-managed pension fund (SMSF) as another tool to drive new investment. The SMSF sets up a trust through which he can buy the property.
"The setup cost was about $3,500, which came from my superannuation account, and it was all done by an accountant," Mr Dilleen said.
"If you're retired, you don't have to pay any capital gains tax on the property you hold in the (SMSF), which is also a great way to reduce the amount of tax I have to pay."
He said the process of increasing the superannuation account balance from $40,000 to $2 million was fairly straightforward. In 2018, he used most of the initial funds in his superannuation account as a deposit and stamp duty to purchase a property in Woodridge, in Brisbane's Logan area, for $153,000.
The Woodridge property was later sold for $260,000 and the profits were invested in a new purchase. This includes a property in Beenleigh, Brisbane, priced at $135,000.
The property was later sold for $395,000 due to a significant increase in property prices in the area. This process of taking advantage of the property's rapidly growing equity to purchase subsequent properties is repeated through his SMSF.
His other superannuation investment was a property purchased for $150,000, which was later sold for $275,000.
"Basically, what I'm doing is deleveraging with properties that have doubled in value, and then increasing my account balance by spreading cash into new properties to allocate liquidity."
"I now have seven properties in my superannuation account and if I sell them all, I'll get more than $2 million." Dilleen acknowledges that this strategy is risky, but adds that he thinks it is better than other options.
"If I had gone the way I had it, I would have only $100,000 in it now, but with this strategy, I have turned an account that was only $100,000 into $2 million."
(Image source: RealEstate)
"Of course, it's not for everyone, and I was very scared at first, but after two or three experiences, I became more confident and realized that it would be stupid not to do it."
"I know it sounds egotistical, but I'm good at spotting undervalued properties, which makes the whole approach work."
He added that since the start of the pandemic in 2020, he has benefited from a significant increase in house prices and believes he has been rewarded for taking a bold approach.
"The downside of what the average investor thinks is the ongoing accounting fee, which is about $2,500 a year, and most people avoid it to save money, I do it to make money."
A mortgage broker advises investors interested in adopting a similar strategy to be cautious about SMSFs.
"If you're a seasoned buyer and you know what you're doing, buying a property with your pension is a smart way to make money, but in some cases, it can be stupid." ”