Many people are unaware that you can in fact use your superannuation (within a self managed super fund) to purchase an investment property. Now this can sound like a daunting way of investing but I can assure you – it’s not that hard.
Here we have listed some frequently asked questions relating to self managed super funds and the purchasing of property. As we are not licensed to give advice on self managed super funds we recommend that you speak to an experience financial planner or similar. See list of recommended advisers in our FAQ section below.
Can I buy property using my superannuation?
Yes. You are able to purchase residential investment and commercial property (such as shops, business premises, offices and factories) within a Self Managed Super Fund (SMSF).
How much superannuation do I need to get started?
This is dependent on the cost of the investment property being purchased. Establishment costs, a minimum deposit
of 20%, purchase costs and a reserve of 1 years negative cash flow is needed. Take into consideration you are able to
combine up to 4 individual member’s superannuation into a SMSF to increase the capital available.
What are the potential tax benefits of owning property inside my superannuation?
Within the Superannuation environment rental income from investment properties is taxed at 15%. This rate also applies for Capital Gains tax in the first year of ownership, after which it drops to 10% and no capital gains tax is payable on the sale of a property in pension phase.
Can I borrow to purchase property with my self managed super fund?
Yes. Many banks provide loans to SMSF’s to purchase investment properties of up to 80% of the property value.
Who pays the mortgage? And other expenses of the property?
The SMSF covers interest, maintenance, insurance, rates, body corporate fees, property management and any other
associated property expenses. These expenses will usually be deductible to the fund.
What happens if I can’t pay the loan for my superannuation property?
Loans for Superannuation Property are non-recourse, this means that the lender is only able to take the property and has no right to the remaining assets or funds in your SMSF.
How does borrowing to buy a property inside superannuation affect my personal portfolio?
Buying property inside superannuation could have an impact on your personal portfolio if you are required to contribute more money into the SMSF to cover expenses. It’s extremely important that members choose the right property to match your SMSF capacity (income and expenses). Members can avoid this by simply buying an investment property that doesn’t cost the members more then what the SMSF is earning.
What is a bare trust?
A Bare trust is a trust where the beneficiaries are absolutely entitled to the assets within. For example, a bare
trust holds an investment property on behalf of the SMSF Trustee’s; the bare trust can only transfer ownership of
the investment property when the debt (mortgage) is paid off.
Who should I ask for advice when buying property with my superannuation?
There are multiple advisers an investor should consult when buying property, they include:
• Finance Broker
• Financial Planner
• Property Adviser
• Solicitor (Property)
Or you could talk to Superannuation Property who provides all of these services.
Can I use a property manager to manage the property?
Yes – all expenses are covered by the SMSF; including property management fees. Remember the idea of a SMSF is to make as much money as possible, so looking for savings with property managers is important.
Why do I need a corporate trustee when buying property?
You don’t necessarily need a corporate trustee when buying property, however using a corporate trustee is more often then not favoured by the lenders, plus a corporate trustee provides members with added asset protection. Risk avoidance strategy should be a number one priority when buying property with your superannuation.
Can I buy a property before my self managed super fund is set-up?
No. You can not purchase a property before you have all the correct Self managed super fund documents in place. Superannuation property can provide you all the compliant documentation to ensure you set-up a SMSF correctly in 24 hours.
Who pays the deposit when buying my next investment property?
The self managed super fund pays all deposits on investment property. No out of pocket expense are required.
Who can rent my superannuation property?
The only rule when renting an investment property owned buy an SMSF is you cannot rent the property to a related
party. This means a member’s relative, or spouse.
How much will the bank lend me to buy a property with my SMSF?
Generally, banks will lend between 70% and 80% of the property value. Each loan is assessed on a case-by-case basis and you should consult a Superannuation Property finance specialist for more information on your borrowing capacity.
Can I claim depreciation inside a SMSF?
Yes. Standard deductions such as deprecation are allowable inside an SMSF. Consult Superannuation Property expert for a property depreciation schedule.