Use your SMSF to buy property wrong at your own risk

Using your SMSF to get a leg-up and buy a property might seem like a great way to add to your portfolio, but there are many rules and regulations SMSF buyers need to follow, or they could see themselves getting in a lot of trouble.

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The rising trend of utilising superannuation to buy investment property was not surprising for Peter Maloney, CEO of GlobalX, due to the current disdain towards financial institutions and share prices.

“More buyers and older Australians are planning for their future and they have lost faith in their financial systems. They are turning to self-managed super funds (SMSF) to build their property portfolios,” Mr Maloney said.

“The appeal of this to the average Australian is that they get to decide when and where their super is invested and they can see a physical asset.”

Mr Maloney warned that interested investors need to make sure that they can stick to the rules and do their homework before settling on buying property through an SMSF.

“There are so many rules involved with the process so it’s important to seek independent financial advice on whether this is the right move for you,” he said.

“There are a lot of fees involved with SMSF property sales and these can add up and reduce your overall super balance. You should definitely try to find out all of the costs before signing up.

“It’s also important to note that SMSF property loans have very strict borrowing conditions. You cannot use all of your superannuation to buy a million-dollar investment property as you must leave behind 10 per cent of the proposed investment’s value, in your SMSF as a ‘liquidity’ buffer.”

If investors incorrectly set up their SMSF property loan documentation and contract, backing out of the arrangement can prove difficult, so it is essential investors take all the right steps, Mr Maloney said.

“You shouldn’t be afraid to ask your lawyer or conveyancer and your accountant to explain things to you in depth. It’s tough to wrap your head around so it’s always better to be comfortable and ask plenty of questions,” he added.

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