Should you use your Superannuation to Buy an investment property?
Using your super to buy an investment property
For many Australians, their superannuation is their largest asset so Investing in property can be a wise vehicle for long-term financial security and potential capital growth. There are also a lot of factors to consider before you take the first step= of using your super to buy an investment property, but it can provide a way to diversify your investments. In this article, we'll provide an overview of using your super to buy an investment property and some things you’ll need to consider to help you make an informed decision about whether it's the right option for you.
What are the benefits of buying an investment property with my super?
There is a range of benefits to buying an investment property with your super, from tax advantages to the ability to generate more retirement income. Everyone’s situation is different and some of these benefits will differ based on your unique circumstances, so the first thing you must do is to a qualified financial adviser before you make any decisions.
By buying an investment property with your super, may also help you pay off your loan faster through using rental income and in addition your super contributions. If you’re then looking to grow your portfolio, you can use the equity you build up in the property to buy your next one. If there is no mortgage on your property, you can use the income generated from the property to fund your retirement income.
Perhaps one of the biggest advantages of buying investment property through super is the Capital Gains Tax (CGT) discount available, which is capped at 10 per cent for real estate purchased with an SMSF. And if you take out a loan to buy your investment property, you can claim a tax deduction for the interest accrued on the loan.
What kind of property can I buy with my superannuation?
You need to set up a Self Managed Super Fund (SMSF) before you can use your super to buy investment properties. Setting up an SMSF can give you more control and visibility over your investments, but it also requires more administration and compliance tasks than holding your super in a regulated fund.
With your SMSF, you can buy commercial or residential investment property. The property must be located in Australia, and there is no limit on the proportion that property makes up in your total SMSF holdings or limits on property values when it comes time to purchase.
How do I get a loan to buy an investment property with my SMSF?
The SMSF trustee takes out the loan and uses it to buy a property in the SMSF. When you take out a loan to buy an investment property through your SMSF, it is called a Limited Recourse Borrowing Arrangement (LBRA). As a non-recourse loan, the lender can only use assets held within the trust to repay debt if the buyer defaults. This can provide additional protection and separation between assets.
Buying property through your SMSF can provide you with more choice and control over the assets that make up your retirement nest egg. However, with all the benefits it provides, there are also factors to consider, such as the administration and compliance burden and the risk of having property making up a large proportion of your portfolio. With everything you need to consider before buying a property with your super, you should talk to a qualified financial adviser who can give you advice tailored to your unique situation.
Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.