I am noticing more and more that borrowing money to purchase property through a Self Managed Super Fund is becoming very popular and is a topic most property investors are interested in learning more about. This is not surprising given there are a growing number of Australians wanting to take control of their investment decisions so that they can achieve financial freedom in retirement. There are certainly many advantages and potential tax benefits for purchasing property through this structure but there are also many considerations and costs that have to be carefully considered before deciding if this is the right strategy for you. I have been very fortunate to work with many investors that have successfully implemented this strategy through our Mortgage Broking business, Rise High Financial Solutions, as it is an area we specialise in. So I wanted to take this opportunity to point out a few things you should consider before deciding if you want to pursue this investment strategy
Firstly, Why Invest in Property through a SMSF?
1. Greater control over your superannuation assets
2. Attractive concessional tax structure
3. Using your superannuation as a deposit to purchase property
4. If the rental income and your compulsory superannuation guarantee covers the property expenses then this strategy should not impact your personal cash flow
Things to watch out for:
1. The cost of setting up a SMSF and ongoing maintenance of it (including record keeping, tax lodgements and annual audits). I suggest you get a finance pre-approval to ensure that you can do what you want to do before you go to the expense of setting up a SMSF
2. Additional Borrowing costs involved
3. Whilst there is no minimum balance required for an SMSF if you are wanting to establish an SMSF for the purpose of purchasing property, you will have to ensure that you at least have sufficient funds in your SMSF (or that you can contribute sufficient funds within the contribution rules) to cover the deposit and purchase costs of the property along with ongoing maintenance of the SMSF.
4. There are some strict restrictions around the type of property you can buy, for example:
a. The purchase must be an arms length purchase – ie. you can not sell a residential property you already own to your SMSF but may be able to if the property is commercial;
b. You can not borrow money through SMSF to build an investment property and there are strict rules about the level of repairs, maintenance and improvements that are allowed, so make sure if you are purchasing a property and hoping to add value to it through renovations that you check to ensure you are allowed to do what you want to do before you buy the property
5. You can not access the equity growth to purchase additional properties in the future
6. Most importantly – make sure you get the right advice upfront. There are significant penalties and tax implications if you do not comply with the legislation.
The message I want to leave you with…
SMSF Property Investing can be a great strategy if done properly but it is certainly not for everyone. If you are considering this strategy make sure you get the right advice upfront!
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At the tender age of 18, Marissa Schulze already possessed a financial understanding well beyond her years. She saved up her first deposit while still living at home with her parents and bought her first property. Now, 11 years later, her portfolio of 16 properties brings her $3,710 in rent each week; has amassed equity of more than $1.5m. She now runs her own mortgage broker firm in Adelaide, along with her husband and, still at just 30 years of age, she is only getting started.
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