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Buying property through your self-managed super fund (SMSF) could be a great way to maximise your wealth and provide for a comfortable retirement. But don’t get caught up in the property frenzy. Get to know your options and make a decision that’s right for you and your circumstances.
Property can be a high-risk investment
With property prices rising consistently across much of Australia’s real estate market, you’d be forgiven for thinking that property is a fail-safe investment. Especially when interest rates are at historical lows. However, when the market fails, losses can be disastrous. Borrowing to invest is even higher risk, so you need to make sure that you are insulated against any downturn in the market.
Choose a long-term strategy to maximise benefits
We all want to maximise returns and take advantage of tax incentives. Using your SMSF to purchase property will give you the most benefits if you’re looking at the long term. If you’re approaching retirement within 10 or so years, you could be missing out on negative gearing benefits available to you.
Take advantage of generous tax incentives
Probably the biggest draw cards for using your SMSF to buy property are the tax incentives. Play your cards right, and you could enjoy some generous concessions while your investment appreciates in value.
Rental income on an SMSF investment property is generally taxed at 15 per cent and, providing the property is held for more than a year, capital gains at 10 per cent. If you’ve already reached preservation age and draw a pension from the fund, you can reduce your tax for both rental income and capital gains to 0 per cent. Forget offshore banking, it’s time to invest.
There are also tax breaks to take advantage of if the property is negatively geared and – if your property is positively geared or you’ve paid off your loan – you can even use rental income to fund the purchase of subsequent properties.
Hard-to-get loans protect your SMSF
Borrowing money to fund an investment may seem risky or not worth it in the long run. But using your SMSF to purchase a property can increase your wealth and provide for a better retirement. A smart investment with a loan is better than no investment at all, just make sure it’s right for you.
SMSF-purchased properties must use limited recourse loans, which mean that your other super assets are protected from creditors if the fund defaults on the loan. As this is a bigger risk to the lender, they generally require the fund to have at least 20–30 per cent of the deposit money.
Borrowing against your SMSF gives you more capital to invest, which will maximise your wealth in the long term – so long as the investment is sound.
Just remember, don’t put all your eggs in the one basket! Asset diversification is important to protect your super and your future. For more information about SMSFs, download our free SMSF Guide to investing in Property eBook or Information Package today. If you're interested in investing in property through an SMSF, ESUPERFUND helps make it easy, with a fast, streamlined process. And if you act now, ESUPERFUND is offering a Special Free Offer! Click here for details.
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