Buy Property With Super: 20 Things To Consider When Investing with SMSF

Using Self-Managed Super Funds (SMSF) is one of our three common ways (cash, equity release, or SMSF) that our investors purchase property with GPFG. To put it simply, they are borrowing from their retirement savings to potentially earn higher returns later within their SMSF. 

“Our investors are concerned about their retirement savings, and they are looking for ways to improve their returns and accelerate them to their wealth goals,” says Mark Reed, International Sales Manager for GPFG. “When we present options for guaranteed 8% returns or higher and steady cash-flow, the investment strategies that we offer are certainly very appealing.”

We have financial advisors and tax specialists who walk you through every step of the process. 

Benefits of Buying Property with SMSF

Investors might choose to use their SMSF to invest in property for several strategic reasons, distinguishing this approach from other investment methods like paying cash, using equity, or leveraging other financial instruments.

The main benefits of investing in property with SMSF are below:

Control and Choice: SMSF trustees have direct control over their investment choices, including the selection of specific properties, which can appeal to those with knowledge of the real estate market or specific investment goals.

Potential for Higher Returns: Real estate investments can offer both rental yields and capital appreciation. When chosen wisely, the property can provide consistent income and long-term growth within the SMSF, contributing to a more substantial retirement nest egg.

“When investing in units in Bali, it’s a positive cash-flow strategy,” says Reed. “You are earning above average returns, often as high as 15-20%, but more importantly you are seeing money flowing right back into your SMSF.”

Tax Efficiency: SMSFs offer significant tax advantages. Rental income within an SMSF is taxed at a concessional rate of 15%, and capital gains tax is reduced to 10% if the property is held for more than 12 months. Additionally, properties sold during the pension phase can be tax-free, making it an attractive option for long-term investments.

Read more: How Can Property Investors Maximise Their Tax Savings?

Diversification: Using an SMSF to invest in property allows trustees to diversify their investment portfolio beyond stocks and bonds, potentially reducing risk and improving the fund’s overall performance stability.

Asset Protection: Assets within an SMSF are generally protected from creditors in the event of bankruptcy, offering a layer of security not typically available through personal investment vehicles.

Leverage Opportunities: Through Limited Recourse Borrowing Arrangements (LRBAs), SMSFs can borrow to purchase property, enabling the fund to acquire assets that might otherwise be out of reach, without exposing other fund assets to risk.

Estate Planning Benefits: SMSF property investments can be structured as part of an estate plan, potentially providing tax-effective wealth transfer to beneficiaries while adhering to the fund’s trust deed and superannuation laws.

Watch more on our podcast: Episode 10 – Exploring Self-Managed Super Funds with Andrew Bonnici

These reasons underscore the unique advantages that SMSFs offer for property investment, particularly regarding tax efficiency, diversification, and strategic retirement planning. 

However, it’s crucial for investors to conduct thorough due diligence and seek financial advice from financial, legal, and real estate professionals with SMSF expertise is also advisable to navigate this complex investment landscape effectively.

Using Super to Buy Investment Property: Our Handy Checklist of Items to Consider

Buying property with an SMSF is a strategic investment choice that requires careful consideration and planning. After all, it is your retirement savings, which determine how early you can retire as well as how comfortable you are in those later years 

We have put together a comprehensive checklist of 20 factors investors should consider when buying a property with their SMSF.

1. Eligibility and Compliance: Ensure your SMSF is eligible to buy the property and that the purchase complies with the Superannuation Industry (Supervision) Act 1993 (SISA).

2. Sole Purpose Test: Verify that the property investment meets the “sole purpose test” of providing retirement benefits to fund members.

“This is the first rule for compliance that we caution our investors,” says Reed, “because many of them want to purchase a property in Bali, but if it’s with SMSF, you can not use the property for personal or holiday home. It’s not allowed. So while we do offer free stays on our investment options, that benefit cannot be applied to your particular unit. ”

3. Investment Strategy: Confirm that the property purchase aligns with your SMSF’s investment strategy, considering risk, diversification, liquidity, and members’ retirement objectives.

4. Trust Deed: Check your SMSF’s trust deed to ensure it does not prohibit property investment.

5. Borrowing Arrangements: If borrowing to buy property, understand the rules and implications of Limited Recourse Borrowing Arrangements (LRBAs).

6. Property Type: Decide on the type of property (residential property, commercial property, industrial) best suited to your SMSF’s investment strategy.

7. Rental Income and Yields: Analyse potential rental income, yields, and their impact on your SMSF’s returns.

“We focus on cash-flow positive properties and the income they can generate for you now, and is then compounded in your SMSF for higher earnings, or rental income during your retirement,” says Reed.

8. Location and Market Research: Conduct thorough research on property location, market trends, and growth prospects.

9. Ownership and Purchasing Structure: Determine the most appropriate ownership structure, keeping in mind the limitations on related party transactions.

10. Liquidity and Cash Flow: Assess your SMSF’s liquidity and cash flow to ensure it can manage purchase costs, ongoing expenses, and loan repayments if applicable.

11. Property Management: Plan for property management, considering whether to self-manage or hire a property manager.

“Our investors can check this off their list, since we work with developers who also provide property management, such as Canggu Properti, as well as 5-star hotels and world-class hospitality brands like TUI Blue, so this is a hassle-free investment,” says Reed.

Read more: It’s a Suite Life! 11 Reasons Why Hotel Rooms Should Be Your Next Investment

12. Tax Implications: Understand the tax implications, including deductions, capital gains, and depreciation. At GPFG, our investors receive Depreciation Schedules and can have 1-on-1 consultations with our tax experts.

13. Insurance: Ensure adequate insurance coverage for the property, including building, public liability, and landlord insurance.

14. Maintenance and Upkeep: Account for maintenance costs and who will be responsible for property upkeep.

“This falls under the responsibility of property management, which we cover through our developers and hotel brand partners, with sinking funds set aside for refurbishments,” says Reed.

15. Exit Strategy: Have a clear exit strategy for selling the property, considering market conditions and SMSF member retirement timelines.

16. Legal Due Diligence: Perform legal due diligence, including title searches, zoning laws, and any property encumbrances. We have all of these documents readily available for all of our partner developments, and extensive due diligence is completed before we work with any developers.

17. Financing Costs: Calculate all financing costs, including interest rates, loan setup fees, and ongoing charges.

18. Property Valuation: Obtain a professional property valuation to guide your purchase decision.

19. Regulatory Changes: Stay informed about regulatory changes affecting SMSF property investments. SMSFs are regulated by the ATO.

20. Professional Advice: Seek advice from financial advisors, accountants, and legal professionals with SMSF and property investment expertise.  We have experts on our team, but you can also work with your trusted advisors as well.

This checklist provides a foundational framework for SMSF trustees to navigate the complexities of property investment within their superannuation fund, ensuring a thoughtful, compliant, and strategic approach.

Read more: Super Scary! Looking at The Current State of Superannuation

Buying Property With Super – The GPFG Difference

One aspect of GPFG that we are particularly proud of is that our ethos is to be investor-centric, and we work together for the best strategies and outcomes for our investors. For those using SMSF, this diligence and care is pinnacle because of the importance of retirement savings. The choices you make today can flourish later with higher returns and cash flow into retirement, which is our goal for you. Likewise, there are risks, which is why we wanted to present this checklist. For any of our investment options, we can run through the list with you to make sure you have a full picture of short and long-term results. 

Get in touch with us or book a call with our team to review our options and discuss buying properties with your SMSF. 

If you like this guide, you may also like:

Fractional Real Estate Investing: Our Guide To Unlocking the Full Potential of Fractional Investment
Equity Release: What Does It Mean?
Positive Geared Property: How a Smart Investment Can Transform Your Portfolio

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