Superannuation funds can be used to purchase property, although the process is complex. The rules for using super to buy property are complicated and vary between different funds.
In addition, there are limits on how much of a deposit can be made from your super fund. That’s why this article will help you to understand important aspects of buying a property with super.
SMSFs that have complied with superannuation funds can use their funds to purchase the property
The money must be used for the benefit of the fund and not for the personal benefit of any member of the SMSF.
SMSFs may borrow money from a financial institution if they do not have enough cash in their account. They may also borrow from members of their fund to provide additional funds for investment purposes.
In some circumstances, a member’s contributions can be withdrawn by an SMSF trustee and used as security for borrowing up to $100,000 from a lender on behalf of the member.
Superannuation funds can hold residential property directly without having any tax implications as long as certain conditions are met (for example, it’s not held by an associate).
Superannuation funds can borrow up to 80% of the security property value
This means you can take out a loan for up to 80% of the value of your home or investment property. The maximum loan is 80% of the security property value. The loan-to-value ratio (LVR) is the percentage of the property value that the bank is lending to you, so if your LVR is above 80%, you might need to pay the lender’s mortgage insurance (LMI).
Your lender must be satisfied that you have enough income and assets to repay your loan, so make sure they know about any other sources of income, such as rental payments from other properties or side hustles like eBay selling.
Investors must establish a trust over the property by establishing a special purpose trust
A special-purpose trust is used to hold assets for a specific purpose. If you’re buying property for investment purposes, you will set up a special purpose trust to have the investment property.
A discretionary trust is used to hold assets and distribute income at the discretion of its trustees (the people who manage it). For example, if you were setting up a super fund with your own money, you could choose between setting it up as an accumulation account (where your money grows until retirement) or as an annuity account (where the fund pays out regular payments based on how much money has been paid in).
An SMSF loan structure is one of the most popular ways to purchase an investment property
It’s also one of the easiest, as it doesn’t require you to have a large sum of money or significant savings. If you are considering buying a property with super, here are some things to consider:
Like any other approach, some downsides should be considered before taking the plunge into this kind of mortgage strategy. Such considerations include those related to risk and compliance matters (which will be covered in more detail later).
The advantages associated with using super funds for investing in real estate include: First-home owner grants and stamp duty concessions; No capital gains tax (CGT) on properties held within an SMSF; Superannuation can only be withdrawn at age 65 years; Investment growth potential due to low-interest rates on deposits.
Immediate access without having capital set aside in advance via pre-approved loans up to $5 million; Interest rate reductions through increased leverage ratios through mortgage broker advice rather than applying yourself directly – which means less paperwork and less time spent filling out forms during application processes.
Better access through financial planners who specialise in finding suitable investments versus just giving advice only when needed – they work closely with accountants who know how best to use available options such as mortgages within each client’s financial situation, so there’s no need to worry about losing money because
Purchasing a property through your super is a complex process, and you should get advice from a professional before you buy
Before you buy a property with your super, it’s important that you understand the process and what you need to do.
- Understand the process and what you need to do.
- Understand the risks, how to manage them and what protection is available if anything goes wrong.
- Understand the tax implications of investing in residential real estate through your super fund.
- Understand the financial implications of buying a home through superannuation, including:
- The amount of capital that can be withdrawn from your account when purchasing a home (this limit varies depending on different factors such as age). – How much interest will be paid on funds borrowed for any renovations done before settlement takes place (this may vary depending on how long it takes for those renovations).
Whether there are limits on how much rent can be charged by tenants living within a newly purchased property (this will depend upon whether they are subject to state or territory laws).
