The last decade has seen unprecedented turmoil in global share markets. Yet at the same time, the Australian property market has experienced strong and steady growth.
For many Australians considering their long-term retirement plans, it makes sense to use their superannuation funds to invest in real estate. There’s no doubt many people feel more secure knowing their retirement nest eggs are in bricks and mortar, rather than volatile share portfolios.
While there are a range of rules that govern the use of super as a tool for property investing, the rising popularity of the Self-Managed Super Fund (SMSF) has facilitated this trend.
Buying property with your Self-Managed Super Fund (SMSF)
Superannuation investment options have expanded substantially in recent years, giving Australians more choice when it comes to structuring their retirement savings to meet their specific requirements.
With a SMSF, you have the ability to decide for yourself when and where your super will be invested.
That choice now extends to investment properties.
While the rules state that you cannot buy a home to live in with your super savings, you can purchase a property for rental purposes.
It is important to note that before using your super to buy any investment property, your SMSF will need to have a documented investment strategy, which is a detailed financial plan for the trustee/s of the fund.
It’s also worth remembering that your SMSF doesn’t need to have enough funds within it to buy a property outright. The fund can actually borrow money, like a mortgage, to invest in property. This can give you the benefit of leveraging and taking greater advantage of rising property prices. However, unlike a regular mortgage to buy a family home, when it comes to your SMSF borrowing money, the banks will usually only lend up to 70% – 80% of the investment property’s value.
Some lenders require you to have additional cash left over in your SMSF worth about 10% of the value of your property investment, this isn’t the case for all lenders.
Despite all the rules, there are still many advantages to this investment strategy.
What are the advantages of purchasing property in an SMSF?
There are significant advantages to having a property in an SMSF.
Foremost are the tax benefits. Super funds are taxed at 15 per cent – considerably lower than most people’s personal tax rates.
Furthermore, if the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate.
If the asset is sold while the super fund is in pension phase, it’s tax-free!
So, it makes sense to use your SMSF as a vehicle for property investing.
Get professional advice
As with any major financial decision, people should seek advice from a registered financial planner before moving to open an SMSF, in order to fully understand how your fund will operate, and how you’re able to access and use your superannuation.
To equip yourself to make the best decision it is advisable to have a qualified, independent, third-party consultant. Make sure they don’t have any conflicts of interest in order to obtain fully objective advice.
Naturally enough, as with all property investments, it also requires finding the right property that will appreciate in value over time.
How can Worth help you?
Worth Property Investing can help you find the right property to meet all your retirement planning needs. We use real facts, due diligence and solid research to locate the right investments, and we have the track record to help you succeed.
Contact Worth Property Investing today and start achieving your property investing dreams!
“I would definitely recommend Simon. I had a positive experience from the commencement of us meeting to the settlement of the property he found for me while I was overseas. He was strictly professional, prompt with his communication and I felt he had my interests at heart which showed through his work.
Thanks for everything Simon”
Aminda Huynh – Cabramatta, Sydney