Buying an investment property is often high on the wealth wish list for Australians of all walks of life.

But unlocking the spare funds to make the purchase can often be a challenge.

Many would-be property investors are turning their attention to superannuation as a possible funding channel to build a property portfolio. However, when it comes to buying property with superannuation, there are several key points to consider and requirements to meet before you’re able to sign on the bottom line.

Can you buy investment property with superannuation?

While every working Australian has superannuation – not everyone can buy an investment property directly via their super.

It is only self-managed super funds (SMSFs) which allow for direct purchase or investment in residential property.

You can still have indirect exposure to residential investment property via retail, corporate or industry super but this is usually done via the fund’s own allocation of shares in listed property trusts or through diversified property portfolios.

SMSFs have grown in popularity over the years as more Australians look to take greater control of their finances. And as SMSF trustees have accumulated significant wealth within their funds, residential investment property can become an asset class of interest.

To buy residential investment property with superannuation there are several regulatory boxes to tick. These include meeting the “sole purpose test”, which specifies the purchase must be undertaken to provide retirement benefits to members of the SMSF.

In addition, the investment property cannot be bought from a related party of a member of the fund. It must also not be lived in or rented by a member of the SMSF or any of the fund members’ related parties. An SMSF however can acquire a business premises or commercial property from a member of a super fund.

Borrowing to buy property with superannuation

If an SMSF trustee does not have enough cash to buy the residential investment property there may be borrowing options available through the fund to help make the purchase.

For example, LJ Hooker Home Loans offers a SMSF loan available for eligible residential property purchase, and to refinance a residential SMSF loan from another lender. A refinance may lower the interest rate offering lower interest costs to the super fund. Our Link SMSF loan also offers fixed rate options and has a simple approval process.

Some financial institutions offer limited recourse loans in super. Such loans mean the lender can only take the investment property back in the case of non-payment of the loan and no other assets of the super fund can be used to support the security of the transaction. The amount of the investment property cost that lenders are prepared to loan can differ significantly.

Is buying property with superannuation the right strategy for me?

In recent years there has been great uptake of people in their 40s looking to buy property with superannuation. They may be at the stage of having accumulated a reasonable amount of assets in their SMSF and wanting to diversify their investment portfolio. Often, they already own an investment property outside of super, are comfortable and familiar with this asset class and are looking at a long-term position.

Buying an investment property through superannuation will require professional attention and assistance particularly around structures, tax and liquidity. For example, it will require the establishment of a bare trust in the first instance. Your accountant or financial planner will assist you in this area.

Like with any valuable asset, insurance (ie landlord insurance in the case of investment property) is a key consideration.

Ultimately, deciding on whether buying an investment property with superannuation is right for you comes down to how well it fits within your overall wealth strategy.

This can be a complicated area and therefore it’s vital to speak with a financial adviser well in advance.

We can help

Our lending specialists are experts at helping you apply for a SMSF property loan. We’re not accountants or financial planners so can’t give you advice on whether this is the right strategy for you.

However, if you’ve taken the right financial steps, we can help you set up the loan. We can also provide you with unlimited free property information to help with your research.

We’ll help you reach your investment property goals!

Download our handy ebook today!

We hope you found this article helpful. If you'd like to discuss it further please fill in the form below and we'll be in touch.

This article is prepared based on general information. It does not consider individual financial objectives or needs and is not financial product advice. You should always undertake your own independent property research and obtain your own financial advice in relation to property investing.