Are you planning to utilise your super for property investment? This trend wave has been growing in Australia recently, especially among those who want complete control of their financial future. It’s a strategy that can be a smart move, securing your future. Being Australia’s leading mortgage brokerage experts, we’ve assisted numerous clients through this investment journey over the years.
Let us give you the rundown on how the self-managed super fund property investment works, what factors to consider, and why it could be a smart decision for your future.
Understanding What is SMSF Property Investment
In Australia, SMSF property investment enables you to purchase a residential or commercial property using your self-managed superannuation fund (SMSF). At the same time, the same SMSF owns the property you buy. Moreover, any capital gains related to that property, including the rent, will also directly go into your super fund. The best advantage of this is a continuous and significant growth in your retirement savings.
While we don’t consider this particular strategy for everyone who comes in, we’ve helped hundreds of professionals and business owners use it as a powerful way to diversify their super portfolio. This acts as the real smart move, as it offers them direct control over their tangible asset, unlike traditional stocks and shares.
Key Advantages of an SMSF Property Investment
1. Tax Benefits
- Your SMSF-owned property is treated favourably.
- The capital gains and rental income associated with the property are taxed at a low concessional rate of 15% during the accumulation phase.
- The tax rate drops directly to 0% once you enter the retirement phase (retirement-phase pension), which also means that you can then sell that property without paying any capital gains tax.
2. Diversification of the Portfolio
Property investment allows you to spread your risk. It adds a stable income-generating source to your asset mix, where you otherwise think of tying up all the retirement savings in a single type of asset.
3. Future Planning
If you’re a business owner, you can also use this SMSF to purchase a commercial property for business operations. This also means that your business will pay rent not to you but directly to your super fund, thereby building a solid retirement wealth for you.
4. Establishing a Self-Managed Super Fund ( SMSF)
Be assured that when you are setting up an SMSF, ensure your accountant is authorised to do it. The safer side is to get this done through a financial adviser. In some cases, lenders may ask for the details of “ advised provided” you to buy property under a Self-Managed Super Fund. You must consider engaging an experienced mortgage broker who has expertise in doing SMSF property loans. The slightest mistake can cost you a fortune.
5. Choose the right lender that works for you
Choosing a lender or bank is critical for property loans under an SMSF. Many lenders look for liquidity text, meaning they would keep 5 to 10% money from the super fund to maintain the cash flow. This may hinder your ability to get maximum borrowing or to purchase your second property under an SMSF. Check the fees, the loan features such as offset account, flexible repayments, etc. Generally, it’s expensive to change lenders for SMSF property loans, so choose your lender wisely. Do extensive research or best to contact expert SMSF property loans brokers in Australia.
want to know how much your fund can borrow and which lenders suit your SMSF strategy?
Speak to VOXFIN’s SMSF Property Loan Expert now!
All You Should Know About SMSF Property Loans & Costs
To purchase a property, you can take out an SMSF commercial property loan through your SMSF. This loan option is way different from standard home loan options and has its own set of rules and requirements. It’s often a Limited Recourse Borrowing Arrangement (LRBA), meaning that the lender’s claim is restricted only to the specific property in the deal, while protecting all the other assets within your SMSF.
The SMSF property investment setup costs include –
- The costs of establishment
- The costs of borrowing
- Legal fees
- Stamp duty
- Annual audit cost
Our SMSF property advisors in Melbourne will guide you on navigating all these costs and find the right loan for your needs.
How Do You Ensure a Successful SMSF Property Investment Journey
Seek guidance from experts
You should never consider this type of investment as a DIY project. Always trust only professional mortgage brokers, financial advisors, and accountants specialised in SMSF loans.
Make sure you have a proper plan
Ensure that both the property you’re purchasing and the SMSF investment plan align with each other. Ask questions like – Is it cash-flow positive? Is there potential for capital growth?
Stick to the rules
For SMSF investments, the ATO has a set of strict rules. You cannot use the property or live in it for personal purposes. Moreover, you cannot rent it out to any related party.
Don’t Overextend
Make sure your fund has sufficient cash flow to cover maintenance, mortgage, and other property-related expenses, especially if the property has been vacant for a while.
Know your eligibility and the next steps you should take!
Book your first SMSF Property Investment Assessment now.
FAQs
Can I live in my SMSF-purchased property?
No, ATO’s prohibitions are strict for you or any related party from living in the property or using it.
Is there any difference between the rules for residential vs. commercial property?
Yes, there are differences between the two. Commercial properties offer more flexibility and can be rented out to your own business. On the contrary, residential properties cannot be rented.
How much do I need in my SMSF to start?
There’s no minimum amount officially, but we always recommend having at least $200,000 in your fund to make it viable.
Can I use equity from my personal home as a deposit for an SMSF property?
In short, no, this cannot be done. The rule is that all the funds for the deposit must come from within the SMSF itself. However, there might be a way. Please speak to your financial adviser for detailed personalised advice.
Can my SMSF buy a property from me?
Absolutely, but only if it’s a commercial property. On the other hand, buying a residential property from any related party is prohibited.
How much of the super can be used for property investment?
There is no hard limit. However, lenders typically require a significant, i.e., 20-30% of the property value.
Do I need a separate legal entity to buy the property?
Yes, the property must be held in a separate trust, known as a Bare Trust or Custodian Trust.
Are the returns guaranteed?
No, like any other form of investment, the property value can go down as well as up. What’s crucial is to perform thorough due diligence.
