Using Super or a Self-Managed Super Fund
Running a self-managed super fund (SMSF) can hold plenty of appeal including having access to a broader range of investments. However, managing a SMSF also comes with costs and responsibilities, and it’s important to be sure you have sufficient savings – and personal time – to manage your nest egg yourself.
Superannuation and investment property
If you’re sure that a SMSF is the right choice for you, one of the main decisions you face is where to invest your nest egg.
Property is a very popular investment among Australians, and it’s something most of us understand. So it can be very appealing to invest your retirement savings in property, and this can be done in one of two main ways.
If your SMSF has the funds available, it may be possible to purchase a property outright without the need to borrow – as long as the property is designed to help fund your retirement, and not, say, a holiday home. Alternatively, your SMSF may be able to take out a loan for the investment property.
While SMSFs have been able to borrow to invest for some time, loans to SMSFs are usually “limited recourse” borrowings. This means that if your fund defaults on the loan, the lender can only seek compensation from the property purchased with the loan, without access to any of the other assets held in your SMSF.
As this can increase the risk for lenders, loans to SMSFs tend to have higher costs than regular investment loans.
There are other factors to weigh up too. Only a limited number of lenders offer non-recourse loans to SMSFs, so this is definitely an area where the specialist help of an Aussie Broker is required.
Buying property through a self-managed super fund
To decide if investing property through your SMSF is the right choice for you, it’s essential to weigh up some key issues.
- How much can your SMSF borrow? Loan to value ratios (LVRs) are typically lower for SMSF property purchases, so you will need enough funds to cover the deposit and upfront purchase costs.
- Does your SMSF have sufficient cashflow? Will the rental property make a profit – or a loss, on an annual basis? SMSFs generally pay tax of 15% on net income, which is great if the property earns a profit. But if it makes a loss, you can’t transfer those losses to your personal income to save on tax.
- Are you aware of the fine print? As SMSF loans cannot be used to pay for renovations that can increase the value of the property, you need to be sure you select the right loan – and the right property, from the start.
Only work with experts
The complex nature of SMSF lending makes it essential that you partner and consult with a mortgage broker, accountant, financial planner and solicitor/conveyancer, who each understand what’s involved in SMSF property purchases.
Your SMSF approved mortgage broker can give you a clear picture of how to find the right loan when investing in property through a SMSF for your circumstances.
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- Chapter One : Things to consider before investing in property
- Chapter Two : Determining where to invest
- Chapter Three : Investment Properties by Dwelling Types
- Chapter Four : Finance for Your Investment Property Purchase
- Chapter Five : How to Invest in Property
- Chapter Six : Adding Value to Your Investment Property
- Chapter Seven : Positive and Negative Gearing
- Chapter Eight : Getting Your loan
- Chapter Nine : Selling your Investment Property