Buying Property Using Self Managed Super Funds

buyers agents and Self Managed Super funds

 

Secure your retirement by investing in property. Australia’s super fund members are risking their nest eggs on the back of global share market volatility. Investing in property is fast becoming a popular way of safe guarding your super money. 

As with all investments, you need to be careful and diligent in doing your research or leverage someone else’s knowledge to increase your chance of success. 

Wise Real Estate Advice specialise in targeting high growth investment property investment using self managed super funds. Our experienced buyers agents customise the buying process to each individuals needs.


Taking Control Of Your Super

It is important to take into account that buying a property through an SMSF should not be your priority, however it is an option that people can take, if they choose to have more control over their super account.

If you are a small business owner, purchasing a property through your SMSF it can be a huge benefit, because under the superannuation act, they are able to classify their property as their business place.

However, remember operating rent-free or at a discount should not be the reason why you do this, because you will still need to pay rent to the SMSF at the current market value. It is also illegal to classify the property as your business, but then secretly use it as holiday house. The penalty for doing is quite high and is not worth doing.

Even though managing your own SMSF takes a lot of time, money and dedication, this should not be the reason why you don’t undertake the process, as there are a number of benefits, such as having a lot more control over you super, and potential tax benefits.With an increase in popularity of SMSFs, a lot of financial institutions are offering service such as: software and education services, administrative provision, and SMSF administration.

These types of services will ensure that you are up to date with your paper work, tax returns, and arranging an annual audit, or any other general inquires.


Benefits of an Self Managed Super Fund Property

By buying a property through a SMSF, the maximum amount of tax payable on the rent will be 15 per cent. However, if the property is held for longer than 1 year, the amount of tax payable on any capital gains tax is discounted by one third, once it is sold, it bring it to 10 per cent. Another advantage is that once a member receives a pension, supposing they have held the property for a long period of time, then the superannuation fund will no long pay any tax.

 

Understanding how much you will need for retirement could seem like a distant need that could be hard to plan for. Below is a neat calculator that can help you estimate funds you will need out side of your principle place of residence (your home).

Weekly Income: How much we do you need to maintain your desired lifestyle?

Estimated: $1000.00

Annual Income: Multiply your weekly income by 52 (weeks) to give your annual figure.

$52,000.

How much income do you need over 20 years of retirement: Multiply this annual income by 52 (weeks) for the annual figure.

$1,040,000.

What value asset do you need to generate your weekly income at retirement? 

To generate the above weekly income you will need an asset worth approximately $1.2M returning about 4% per year to generate your weekly income of $1000.

Benefits of SMSF Property Investment

  • Greater control of your own investments
  • Ability to borrow safely via non-recourse loans
  • Only 15% tax on net rental income
  • Zero capital gains tax on income or capital gain after age 60
  • Leverage a high value asset.

The Australian Taxation office has made a number of restrictions on on the type of investment available to SMSF beneficiaries, below is a table outlines ATO statistics of the most popular forms of SMSF investment. 

SMSF Assets HeldValue 
Australian Listed Shares$187B
Cash and term deposits$159B
Managed investments$31B
Non-redidential property.$68B
Residential property.$24B
  
* Based on ATO SMSF quarterly statistics – June 2016.

To minimise your dependancy on finance it advisable you have 50% to 60% deposit (of the property value) in your super account, you can then open up your own SMSF. Over the past years large SFMS have outperformed small SMSFs as they are able to provide: a more diversified portfolio, a more experienced in the industry, and lastly, they operate a lot more effectively. Remember, that putting all you super savings all in one basket rather than in a range of investments, can be an extremely risky strategy that should only be done by a professional.

By buying a property through a SMSF, the maximum amount of tax payable on the rent will be 15 per cent. However, if the property is held for longer than 1 year, the amount of tax payable on any capital gains tax is discounted by one third, once it is sold, it bring it to 10 per cent. Another advantage is that once a member receives a pension, supposing they have held the property for a long period of time, then the superannuation fund will no long pay any tax.

Due to the complexity of arranging finance for a self managed super fund it’s critical your mortgage provider to guarantee your finance with no conditions upon which approval is based. With this type of lending it’s common for a bank to approve conditional finance prior to a purchase and offer a number of complex conditions which the loan is based. When dealing with any banks I aways apply the saying ‘the devil is in the details.’ 

Managing a SMSF will involve a great deal of expertise, responsibility, money and time. It can cost up to $20,000 to set up a SMSF, however other costs need to be consider as well, such as accountant fees, adviser fees, ongoing annual fees, and legal fees, to ensure that everything is working properly.


 

Is Buying Property with SMSF Right For You?

If you don’t have mature funds then it is not advisable for a person to purchase a property through a SMSF, as it would not be a good investment. If you have a smaller percentage of money, it is preferable for you to allocate a percentage of your money to term deposits or shares.

It is also not ideal for a low-income earner to borrow money through a SMSF, as it will really put pressure on your current cash flow.

Managing a SMSF will involve a great deal of expertise, responsibility, money and time. It can cost up to $2000 to set up a SMSF, however other costs need to be consider as well, such as accountant fees, adviser fees, ongoing annual fees, and legal fees, to ensure that everything is working properly.

Before even considering buying a property through a SMSF, it is vital that you talk to a team of professionals, your financial adviser and a buyers agent about your strategy.

Watch: Whats involved in setting up a Self Managed Super Fund, provided by the Australia Tax Office

A Strategic Approach

Using your super funds to purchase property is a great investment strategy. Making sure your purchase the right property that maximises capital growth is something you have to get right from the start. For a free consultation on how a buyers agent can help leverage your SMSF strategy please call 1800 00 WISE. 

See the Australian Taxation Office’s webpage on self‑managed super funds for more information.

Speak With One Of Our Expert Buyers Agents. Click here to book your complimentary, no-obligation phone call.