Investing in property is seen as a way to secure your financial future. Thanks to tax breaks and the rental income from tenants, it is possible to increase the amount of property you own without there being a significant impact on your monthly expenses.

In Australia, many people nearing retirement consider using their self managed super fund to purchase investment properties.

What is a self managed super fund?

A self managed superfund is established with the aim of benefiting people in retirement. The so-called ‘members’ of these super funds control and run their fund themselves. Having your superannuation set up in this way can mean that you have greater control over your investment strategy. It can offer you tax benefits (tax on investment income from SMSFs is capped at 15%) and it can provide more investment purchasing options than other super funds – options that include property.

Whether or not a self managed super fund is right for you depends on your situation. It is best to speak to a financial advisor to find out if this is a road you should go down.

Using your SMSF to invest in property

As the owner of a self managed super fund, you may decide to use it to buy commercial, residential or industrial property. If you invest wisely, you may be able to grow your wealth in a short period of time.

One benefit of purchasing an investment property through your SMSF is that you do not need the full amount – your SMSF can borrow from the bank the same way as you would with a regular loan.
Borrowing and servicing a loan this way should cost you very little in out-of-pocket expenses as the combination of rental income, super contributions and tax breaks should cover the expenses of your loan and the maintenance of the property.

Owning property through your SMSF will qualify you for tax breaks including limits and even exemptions to capital gains taxes, making a big difference to the total in your super fund. Your financial advisor may also be able to structure your SMSF finances and your loan so that you save thousands in interest each year.

There are caveats, however, surrounding this type of purchase. You will find that borrowing through an SMSF isn’t as straightforward as getting a normal home loan. There are also rules governing whether or not you or your family members can live in the property and what you can do to it in terms of changes and renovations. (For example, SMSF investors are not permitted to add a granny flat to a property). You will likely also be asked to prove that the purchase of your investment property is for the sole purpose of supporting your SMSF’s strategy of building wealth for retirement.

Using your self managed super fund to purchase property offers the opportunity to grow your wealth exponentially. However as there are potential pitfalls, it is recommended to act on the advice of a skilled professional so that you are able to profit in the long term.

Speak with your local LJ Hooker Home Loans property lending specialist about whether borrowing through your SMSF is the right strategy for you.