With a steady track record for growth and security, it’s little wonder most Australians turn to property when looking to secure their financial futures. And as their retirement (superannuation) accounts grow, it’s only natural to start thinking about buying an investment property with those funds.
Superannuation v. SMSF
Superannuation is simply a way to save for your retirement. The funds that go into your superannuation account are contributed (by law) by your employer and, if you choose, yourself as well.
Self managed super funds (SMSF) is also a way to save for retirement. But unlike superannuation, a SMSF’s members are also the trustees of the fund. As trustees, members have more control over how the funds are invested but are also responsible for ensuring the fund complies with regulations.
If you want to purchase investment properties using your retirement funds, a trust structured SMSF has to be set up in order to do so. But before decide to switch over to a SMSF, keep in mind there are significantly more responsibilities involved in having one, as well as governmental rules and conditions that must be adhered to.
What kind of property can a SMSF buy?
With that said, if you have a SMSF with available funds, investing in property is something you should seriously speak with your accountant and/or financial advisor about. If it suits your situation, this investment strategy can really bolster your retirement fund down the track.
What’s more, the property you want to acquire with SMSF must also meet certain criteria in order to be purchased:
- Sole Purpose Test – it’s purchased solely for the purpose of providing retirement benefits to its fund members.
- Not Related – it can’t be purchased from someone who’s related to a fund member.
- Can’t Be Occupied by Members – it can’t be lived in, or rented by, a fund member or anyone related to a fund member.
In short, the property being acquired by your SMSF is pure investment; as long as the property sits in your SMSF, it will need to adhere by the criteria above.
5 Tips for Buying Investment Property with SMSF
Whilst it does require having your accountant and/or financial advisor discuss your situation and ultimately help you set up a SMSF, the few extra steps, fees, and paperwork involved will likely pale in comparison with the gains you’ll receive down the track.
So if you’re itching to put your retirement funds to good use, here are a few tips for buying investment property with SMSF:
- Chat with your accountant and/or financial advisor first to see if SMSF, and investing in property with SMSF, is right for you.
- Understand all the costs involved with just having a SMSF, before you even think about purchasing a property with it.
- Consider the property fees, including once-off fees (eg. legals, stamp duty) and ongoing fees (eg. property management, bank fees) and how that may impact the fund itself.
- Understand SMSF borrowing if it’s an option for your fund. But keep in mind the criteria around this is incredibly strict – so speak with an expert, and understand the conditions around this completely before you proceed.
- Do your research on the property. Ensure it’s a solid investment property by understanding important things such as rental returns, capital growth, and property expenses – just to name a few.
In short, investing in property with SMSF can be one of the wisest decisions you’ll make – as long as you do your research first and understand how it all works. ASIC’s Money Smart website has more information about SMSF and Property here.
If you already have a SMSF up and running and are looking to add another great investment property to your fund’s portfolio, Image Property Group offers a wide array of opportunities for all types of investors, including SMSF investors. Feel free to contact us to discuss your needs today.
Please note: The information provided in this post is general in nature only and should not be considered financial advice. It has been posted without taking into account any of its viewers’ objectives, financial situation or needs. Before acting on any information, you should consult a license financial professional, as well as consider the appropriateness of the data, having regard to your own objectives, financial situation and needs.