How to Buy Property With Super (Superannuation)


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Russell Munfaredi

Russell Munfaredi is the Managing Director and owner of Mortgage Pros. Russell’s wealth of knowledge, unstoppable drive and impeccable service has been the key driver of Mortgage Pros’ success.

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There are various ways to purchase a property, one such way is to use your superannuation through a Self-Managed Super Fund (SMSF). This option allows greater financial flexibility and investment diversity allowing you to build wealth and secure your future.

Although there are a few rules and conditions you should understand first to maximise the advantages and opportunities of this option, these should be a breeze with the help of our mortgage professionals at Mortgage Pros. 

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What is a Self-Managed Super Fund?

A Self-Managed Superannuation Fund (SMSF) is a private superannuation fund that allows individuals to manage their retirement savings. This fund operates under the same regulations and guidelines as other superannuation funds, but what distinguishes it from others is that the SMSF members are also the trustees in charge of com

SMSFs are also subject to the Australian Tax Office (ATO) rules and regulations and can hold from 1 to 6 members (individual or corporate trustee structure).

You can always start an SMSF with no minimum balance. But if you want to take advantage of cost-effectiveness and financial benefits, you see better potential with SMSF balances over $250,000. 

That’s because you can make a higher deposit and borrow less against the property price.

SMSFs are excellent choices for many reasons, including:

  • Flexibility over investment options (many SMSFs invest in artwork, gold, and other high-value collectibles).
  • SMSF investments in real estate that generate rental income can be used to provide additional income streams to you and other SMSF members.
  • SMSFs are subject to only a 15% concessional tax for voluntary contributions.

SMSFs also let you leverage tax deductions, such as:

  • Life insurance premiums for fund members
  • Tax depreciation on assets (like investment property) used to produce income
  • Tax deductions on accounting fees, audit fees, and other charges incurred for managing the fund.
  • Interest expenses on home loans and other finance used to purchase income-producing assets (properties, etc.)
  • Tax deductions on voluntary contributions made by SMSF members

However, note that SMSFs, like other trust funds, are subject to rules and obligations that should be adhered to, including federal laws and trust fund policies. 

SMSF owners and trust members must also maintain the fund by paying an annual supervisory levy to the Australian Tax Office (ATO), keeping financial records, and submitting tax statements and returns (prepared by an accountant).

Nevertheless, with the guidance of senior mortgage brokers, homeowners and property investors can leverage their SMSF to purchase a house or further expand their property portfolios.

Can I Buy a Property Using My SMSF?

Yes. You can use your SMSF to buy a property through an SMSF property purchase. It’s a great choice to crack the property market faster since you borrow from a lender using your super fund.

Note that while you can use your SMSF to purchase a residential property, the trustee (you in this case) and anyone related to the trustee cannot live in the property purchased through the SMSF.

Moreover, fund members, the trustee, and anyone related to them cannot rent the same property.

But if you’re a home buyer looking to invest in a residential property to earn rental income and enter the market while it’s in a viable condition, using your super may be considered a good idea.

How Does Using Your Superannuation To Buy Property Work?

The first thing to know when using SMSF to invest in a property is that it is subject to Limited Recourse Borrowing Agreements (LRBA).

In a nutshell, a limited recourse means that in the event of a loan default or non-repayment, the lender’s options to cover the loan balance are limited to the purchased assets under the loan (the investment property).

That means the lender cannot take the assets held in the SMSF used to cover the loan. SMSF property purchases are subject to stringent conditions, even if you qualify for approval.

If investing in a residential property applies to your SMSF’s long-term investment strategy, then it’s a great way to build equity and retirement funds and diversify your investment portfolio.

Talk to our senior mortgage brokers at 1300 030 388 and enquire now to learn more.

Are there risks involved when investing through an SMSF?

Here are some risks associated with investing in a residential property using your SMSF:

  • You’ll need sufficient cash flow: Adding a home loan on top of your finances means you need sufficient cash flow to meet the increased expenses, insurance premiums, and miscellaneous property expenses.
  • Having adequate exit strategy: If a member cannot contribute to the SMSF due to illness, disability, or death, you need to have a loan strategy in place to continue making regular repayments.
  • Possible tax losses: When the SMSF is used to acquire a property and incurs tax losses, you cannot use those losses to offset taxable income generated outside the fund.
  • Alterations are often restricted: You are typically restricted from making major renovations or changes to the property until the SMSF home loan is paid off in full.

Is There A Catch To Using Superannuation To Buy A Property?

Using your SMSF to apply for a loan involves stringent regulations and policies that you need to adhere to, whether it’s a commercial or residential property.

With an SMSF property purchase, the asset acquired should solely be used to provide retirement benefits to trust members and trustees. Moreover, you and your relatives cannot use the property as a primary place of residence (PPR) due to regulations set by the ATO.

The SMSF should also refrain from borrowing money on top of the outstanding home loan, and the property should be purchased at market value.

Additionally, you must ensure the SMSF has adequate funds to cover the purchase price and processing fees, such as:

  • Stamp duty
  • Upfront fees
  • Legal fees
  • Property management expenses
  • Fees associated with real estate agents
  • Bank and loan fees

All these fees could build up and affect your overall super balance. So, before you commit to an SMSF property purchase, talk to our senior mortgage brokers, and we’ll walk you through bespoke financial solutions that align with your property investment strategy.

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Key Takeaways

Using your SMSF to acquire an investment property is a great way to leverage built-up equity and diversify your portfolio. It’s often best to pursue SMSF home loans with adequate knowledge of the complexities, real-time market insights, and a senior mortgage broker to work with you all the way.

If you’re interested in investing in a residential property using your super fund, our senior mortgage brokers can help. Talk to us at 1300 030 388 and enquire now to learn more.

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