Using your superannuation to buy property through a Self Managed Super Fund (SMSF).

April 4, 2016

 

I often get the question - "can I use my super to invest in property"? The short answer is yes, but there are some limitations.

A growing number of Australians want to take more control over their super and their investment decisions to allow them the freedom upon retirement.

There are certainly many benefits to using your super to invest in property, including potential tax benefits. However before you jump in to this strategy there are also many considerations (including costs) that you should be aware of. To protect your investment you need to 1st ensure that it fits your investment strategy long term to minimise any associated risks.

 
"You can’t buy property through your SMSF if you intend to live in it".

 

 
Some Advantages of using a SMSF to Invest
 

1. Personal control over your superannuation assets

2. Potential tax benefits

3. Your superannuation can be used as deposit to purchase property through a SMSF rather than using equity out of your own home

4. By allowing rental income and your compulsory superannuation guarantee to cover loan repayments and property expenses, there may be little impact on your personal cash flow/budget.

5. SMSF's can be used to buy both commercial and residential properties.

 

 
Some Disadvantages of using a SMSF to Invest
 

1. Cost. There are both initial set up costs and ongoing running costs of the SMSF  (record keeping, tax returns and annual audits).

2. Borrowing costs involved can be more than the usual loan set up fees.

3. You will need a higher deposit to purchase through a SMSF than standard loans. The minimum deposit is 20% plus the associated costs (stamp duty, legals, etc). It is also advisable to retain some funds to cover the ongoing costs of the SMSF.

4. Lenders have restrictions around the type of property you can buy. For example you cannot borrow to buy land and build through a SMSF - ie the house must be an existing dwelling

5. There are strict guidelines around the amount of repairs, maintenance and improvements that can be made to the property. So the idea of buying an older property and renovating to sell is not an option using a SMSF.

6. You are not able to access the equity in the property to assist in purchasing other properties down the track.

7. Strict penalties that may apply if the fund is not set up correctly. So it is imperative to get the right advise upfront. There are significant penalties and tax implications if you do not comply with the legislation.

 

 

"My best advise is to seek professional advice to assist with your investment strategy and to ensure your SMSF is set up correctly from day 1"!
 

 

Have questions about borrowing to invest through Super? Click here to talk to one of our experts.

 

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