Have you considered using your super fund to purchase an investment property?
Here, we’re going to dive into how it works, what you need to know and how you can go about taking that next step into the market. With the right strategy and planning in place, the use of your super to purchase an investment property could be a great option to grow that property portfolio and get set up for retirement.
To kick things off, let’s go through some of the basics!
How does it work?
First thing’s first, the main thing to remember when looking at super fund-based property investment, is that everything must be run through a Self Managed Super Fund (SMSF). Rather than your normal retail or industry super fund, SMSFs allow for greater flexibility to do what you want with your super. That being said, the diversity and availability of your more common super funds can be great too, but today, we’re all about property investment and SFSFs.
According to the ATO, there are around 600,000 SMSFs in Australia, of which almost 70% are made up of two people. Over the last 6 years, that number has increased by almost 20%, highlighting the shift towards taking control of our super and investment diversity.
Despite this increase in SMSF uptake, the thing that so often flies under the radar in terms of mainstream knowledge when it comes to an SMSF, is that up to 6 people can be a part of the same super fund. So, just as they can be done alone or with your partner, you can also manage one with 5 of your nearest and dearest.
It’s easy to be under the impression that you can’t purchase property with super, full stop. The key factor to the ability to do this is that the property MUST be an investment. If you’re here reading this, you may already be well and truly versed to this, but it can be a point that’s easy to slip up at. Like any asset in your super, you’re only able to access your property when you reach your preservation age (which depends on when you were born). SO, you can certainly live in your property when you retire, but only at that time.
Another thing to keep in the back of your mind is that an investment through your super can only take up a particular portion of your total super portfolio. When investing in property, a 10% liquidity buffer in your super fund, consisting of things like cash and shares, is required.
Do I have to pay for the whole property at once?
A great thing about this investment strategy is that you don’t need to have a full property’s worth of cash sitting in your SMSF. Legislation allows for you to be able to take a loan through your fund in order to purchase the property, much like a normal property transaction.
The key difference here is that the purchase, rather than your personal finances, is through a trust in the name of your SMSF, no matter if it’s a personal one, or one through 4 or 6 people.
So, at the end of the day, a property investment through your super fund acts very similar to a normal property investment – loans, and they can certainly be a great option if you’re looking to take that next step to diversify your super.
Why would want to invest in property through super?
There are a number of reasons why purchasing an investment property through super is a great thing – some of them we’ve mentioned throughout this piece, but what better but to sum them all up here for you, nice and easy!
- Diverse portfolios are always great, adding property to your super fund adds an extra dimension of long-term stability.
- There are some great tax benefits to this method of property investment, as the costs are not taxed as highly, due to them being within your super fund.
- You can pay off the loan in an efficient way through voluntary super contributions, as well as the rent you receive from tenants.
- If It’s a commercial property, you can actually rent the premises out to your own business, provided you pay market rent to your SMSF.
- Lastly, and most importantly, they can be a great kick start for your retirement!
At the end of the day, before you go ahead and jump into buying property through a SMSF, your best option is to have a chat with your preferred financial expert. Or, if you’re unsure who to talk to, we have some great contacts!
If SMSF property investment is the option for you, or you simply want to know more, feel free to reach out – we’d love to help.
At Propell, we specialise in tailoring investment plans through a combination of strategy, and a unique understanding of YOU! If you’d like to learn more about our plans, give us a call on 1300 776 735, or head to our contact page.