Unlocking your greatest borrowing potential with SMSFs
Self-managed super funds can bring numerous benefits for investors looking to acquire properties, enabling them to leverage their super contributions to boost their borrowing capacity.
Investors can look to leverage their super savings through self-managed super funds (SMSF), bringing multiple benefits, particularly for those who have exceeded their borrowing limits.
The strategy enables investors to use their super contributions to buy a property, and is becoming an increasingly common way for people to expand their property portfolio.
“It can unlock, for some people it can be $1 million worth of property. So that over a 20-year-period is life-changing,” said Fouracre Financial’s head of broker division Jack Fouracre.
“So it’s not whether you should do your SMSF or not. It’s a combination of both. Because if you do have a good SMSF strategy, it’s going to influence your decisions when you’re in retirement,” he said.
One major advantage of SMSFs is that an investor’s ability to utilise them is not impacted by their personal assets.
"Your personal assets and liabilities in most cases wouldn’t hold you back in regards to your borrowing power within SMSF,” Fouracre said.
“Your super contributions that are mandatory, that are already being paid by your employer, that’s not being used to service your debts outside of super.
“So it’s money that’s already going to super that can service the loan repayments as well as the rental income.”
InvestorKit’s lead strategist Adrian Lee said many investors nowadays are making their first purchase before following with multiple purchases.
“You look what you can, sort of, shuffle and do within their personal, but then you also have this great opportunity within SMSF that if they’ve got the balance, if they’ve got the strong income coming in, it’s another way that they can just really expand the portfolio,” he said.
“It doesn’t have to be this completely separate thing that you look at. You can do your personal, you can also do your SMSF on the side, and they can go in parallel.”
Lee also said another benefit is that the SMSFs do not affect personal cash flow, given it comes out of contributions.
“So a lot of people are definitely exploring it and really charging along to get that extra one or two properties in the portfolio,” he said.
“SMSFs have also become more popular due to higher interest rates affecting borrowing capacity.”
Fouracre said that when the interest rates were rising, investors were forced to use SMSFs after reaching their borrowing power limits.
“It took a bit of time for the banks to adjust their policy to allow people to borrow again,” he said.