Martin Jandera is a qualified Financial Planner and Mortgage Broker with extensive expertise in SMSF's, financial strategies, and family law superannuation splitting strategies.
Martin Jandera answers your questions over the coming months about buying property through superannuation
Q I have heard that it is possible to build a property portfolio in my super fund utilising the borrowing in super strategy, is this correct and how do I go about it?
A Yes it is possible to develop a property portfolio in your super fund utilising the borrowing in super strategy, but not as you would traditionally go about doing so. Traditionally, building a property portfolio relies on using equity in one property to assist with the purchase in the next.
The main impediment to developing a property portfolio in your super fund is that your fund cannot use the equity it has accumulated in one property to assist with the purchase of the next.
Developing a property portfolio in your super fund using the borrowing strategy then leaves you with two options, the first making multiple purchases with fresh cash deposits or unlocking the equity accumulated in any properties held in the fund through their sale, remembering that this could result in a capital gains tax liability.
Therefore in developing a property portfolio a lot will come down to the fund’s property selection as a property that appreciates in value quickly will offer an opportunity to sell and reinvest in multiple properties sooner. In selling up though, the trustees will need to ensure that their initial and ongoing expenses are recovered and the new properties being considered by the fund make it worth any taxation liabilities raised as well as offering a better investment opportunity than the property/ies being held.
You will also need to ensure, as trustee of your fund, that the development of a property portfolio utilising the borrowing in super rules fits within the fund’s investment strategy.
Your property selection will be key to ensuring the ongoing affordability of the strategy as well as its long term success, which will be measured through the boost this strategy gives to your future retirement benefits.
Getting professional advice can ensure this strategy is developed and implemented in a way that best ensures a successful outcome.
Q I am interested in buying my retirement home through my super, utilising the borrowing in super rules, is this possible?
A Subject to your super fund’s investment strategy and its ability to service any required finance amount, there is little stopping your fund borrowing money to purchase a property that you eventually transfer out of the fund and move into in your retirement.
There are a number of things you may want to consider:
1. Is the property you want to retire to a solid investment, noting that as trustees of your fund you will need to justify its purchase in accordance with the investment strategy you have set for the fund?
2. Are you committing yourself to a property too soon?
3. Will your retirement lifestyle desires still be met by the property and its location?
4. Would you be better served maximising your retirement benefits and purchasing a property when you are ready to retire?
It is also important to understand that you will need to transfer the property out of the fund, as you will not be able to reside in the property while it is an asset of the fund. Transferring the property out of the fund may give rise to certain expenses such as capital gains tax (if transferred whilst the fund is in the accumulation phase) and stamp duty. These liabilities will need to be met by you personally or by the fund and have the potential to further erode your accumulated retirement benefits.
You may also be putting your retirement savings at risk if you do not eventually move into the property, particularly if the fund had the opportunity to purchase a better performing property at the outset.
You should be sure to carefully consider these and other risks associated with this strategy before committing to this or any other property strategy where borrowing and super is concerned.
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