Using your super to invest in property

financial management advice

Did you know that you can use your superannuation to invest in property? Often, relying on your super for a comfortable retirement is not enough these days, especially if you are supporting a family.

Therefore, investing in property sooner rather than later can really make a massive difference, and using your super to do so is an effective option that many people don’t realise.

However, it can be a complicated process to master on your own; our advice is to chat with an expert first and do a super review.

A proficient Financial Advisor will be able to clear up these complexities and assess if your retirement plans and current cash flow can help you benefit from a super-funded property investment. To start you off on the right track, we outline some important points for you to consider.

Converting your balances into a Self Managed Super Fund (SMSF)

This is the first point of your research as SMSFs grant more financial freedom when it comes to choosing how you want to invest your money. With that being said, an SMSF cannot be used to get quicker access to your super. Be it leisure or home-related purchases – basically, anything that counts as a personal benefit. The purpose of an SMSF is to have more significant autonomy in investing for your retirement.

The bottom line is that an SMSF requires both time and money. Due to recent law revisions, a minimum balance of $200,000 in your super is necessary. Another important note, and a characteristic that differentiates it from other kinds of funds, is that you and any other members of the fund are also its trustees.

Property investment within SMSFs have some strict decrees. The investment must be commercial only and not directly benefit related parties or yourself pre-retirement. This is outlined in the sole purpose test. Hence, you are free to lease the property out to unrelated third parties, but renting out the property to a family member or using it as a personal holiday residence would be law infringement.

Hefty fines can be incurred for breaching Australian Tax Office (ATO) rules concerning areas like outsourcing SMSF management. Spend some time getting acquainted with such regulations to prevent unexpected penalty charges, or get in touch with us to get the information first hand from an expert.

Planning your investment strategy

An investment strategy will help keep track of your investments’ purposes and will need to include information such as the diversification and liquidity capacity of your assets. This must regularly be reviewed and is one of the areas where some expertise is needed. A well-researched and organised financial plan will eliminate uncertainties and give you better security. Most importantly, it will clarify your requirements and limitations, and determine if your SMSF is suitable for property investing. As a qualified Financial Broker, we can value-add to your plans by giving independent advice on how to maximise cash flow and minimise risk.

Weighing the costs and risk

Just like regular investing, using your super to buy a property constitutes big asset management and includes borrowing funds through a Limited Recourse Borrowing Arrangement (LRBA). These factors inherently bring about additional risk. If you do not plan succinctly enough, you are liable for the increased debt and having your funds’ assets reducing to a point where it is no longer cost-effective.

Take note of administrative costs such as the annual audit, tax return, and supervisory levy. Acquiring and upkeeping a bought property will have also have its fair share of specific expenses, like legal fees, ongoing management fees, and insurance.

Furthermore, your property increases in value. Legislative restrictions prevent you from using this surplus in equity to purchase more property. This is where a property acquired with an SMSF differs from non-SMSF funded property – essentially, your equity earnings are kept within the SMSF.

So why fund property investments with super?

You have the flexibility to invest in both commercial and residential property. ATO has different outlines for commercial property, which enhances indirect benefits for business owners including the potential for directing rent into their SMSF.

With an investment property that is being held onto until retirement, you can see tax-free earnings within the pension period.

An SMSF also supports joint investing. Purchasing a house is often out of financial reach even after pooling together a combination of personal savings and superannuation balances. To meet the deposit required for a property investment, merging your account funds with your family members can boost your purchasing aptitude.

Overall, investing in properties with super is a tangible way to secure your future, drives retirement wealth and gives you far more control over your investments.

There are more benefits to investing in property through your super, and despite its certain restrictions, it can be very advantageous. It may seem complicated, but the good news is that our Financial Advises and Investment Specialists are experts in the field and can guide you through the process of property investment with SMSFs.

Get in touch with one of our Financial Advises today to find out more!

1300 359 245