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Is it a good idea to buy a property with an SMSF? Let's talk..

Know how to invest right and how you can maximize your benefits.

Did you know that as of June 2019, the Australian Taxation Office (ATO) reported that there were almost 600,000 SMSFs in Australia with over 1.1 million members?

The total estimated value of the assets held by SMSFs was $748 million, with listed shares making up 31% of this number followed by cash and term deposits (21%)

Investing in properties through an SMSF is a powerful way to build wealth for retirement. It is a strategy that has become increasingly popular in recent years, and for good reason.

By using an SMSF to invest in property, you can take advantage of tax benefits and potentially grow your retirement savings more quickly than through traditional investment vehicles.

Another benefit of using an SMSF to invest in property is the ability to borrow money to purchase the property. This is known as a limited recourse borrowing arrangement (LRBA), which means that if the SMSF defaults on the loan, the lender can only access the property purchased with the loan, not any other assets held by the SMSF.

However, investing in property through an SMSF is not without risks. For one, SMSFs require a significant amount of time, effort, and expertise to manage effectively. Additionally, investing in property is not a guaranteed way to build wealth, and there is always the risk of market fluctuations and unexpected costs.


What is an SMSF?

An SMSF, or self-managed superannuation fund, is a private retirement fund that is under your own management, as opposed to being managed by a superannuation provider like 'Australian Super' or 'QSuper'.

Superannuation is essentially a retirement savings account that is mandated by law for your employer to make contributions to, and..

"which cannot be accessed until you reach the 'preservation age', which typically falls between 55 and 60 years, depending on your birth date."

The primary objective of a Self-Managed Super Fund (SMSF) is to provide greater autonomy over your super contributions, including the ability to determine the amount you pay in and the investment choices you make. While this may seem like an attractive proposition, managing an SMSF entails a significant degree of responsibility and effort.


Can I use my SMSF to buy a property?

Yes, it is possible to use a Self-Managed Super Fund (SMSF) to purchase a property. However, there are some specific rules and regulations that must be followed.

Investing in residential property

If you purchase a property using a Self-Managed Super Fund (SMSF), it is prohibited for you, any other trustee, or any person related to the trustees (regardless of how far removed the relationship is), to live in or rent the property. This means that you cannot use an SMSF to buy a vacation home and stay there during the summer.

Additionally, you cannot transfer an existing residential investment property to an SMSF by either buying it at market value or contributing to it within the cap limits.

Investing in commercial property

When it comes to investing in property through a Self-Managed Super Fund (SMSF), commercial premises offer certain advantages over residential properties. Residential property cannot be rented or occupied by you, any other trustee, or any relation to the trustees, according to the rules governing SMSFs. This means that purchasing a holiday home to enjoy over the summer using an SMSF is not allowed, and existing residential properties cannot be transferred to an SMSF.

While commercial properties can be sold to an SMSF by its members and leased to trustees or related individuals or businesses, there are still several considerations to keep in mind. The purchase must align with the SMSF's overarching function of providing retirement benefits for its members, as per the sole purpose test.

Although many small business owners use their SMSFs to purchase business premises and pay rent to the fund, it is important to ensure that the rent paid is at market rate and paid promptly and in full at each due date. Additionally, SMSF loans have stricter criteria than traditional lending, with tighter loan to value ratios.

Before purchasing property through an SMSF, it is essential to consider the expected yield and growth in property value. If the investment does not meet the requirements, it may be necessary to reconsider.


Can I use my SMSF to buy a property?

Using your super fund to buy property can be a great idea, as it can not only boost your retirement funds but can also provide some of the best tax incentives there is.

With the right self-managed super fund structure, and property type, your fund could be worth hundreds of thousands of dollars more when you retire.

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If you're looking to invest in properties through a self-managed super fund and would like to know more about how you can maximize your benefits?

Speak with us! Email or give us a call at (03) 8548 1843.

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