Can You Invest Using Your Superannuation?
The Answer Might Surprise You
Did you know that you can invest in real estate using your superannuation?
And you don’t even have to be retired to do it.
Not many people know about this.
But surprisingly, it’s an option for a lot of people.
It could be an option for you.
By investing in real estate this way, you still take advantage of all the benefits of real estate such as high growth, leverage and income.
And if one of your goals is to retire early, this can potentially get you there much sooner.
A Bonus Property?
One of the best reasons to invest using your superannuation money is it’s not connected with your personal finances whatsoever.
It’s treated entirely separately.
In other words, if you purchase a property in your superannuation fund, it doesn’t change what you do in your own name.
They are legally separate so you’re not forced to choose which entity to invest in.
You can do both.
However, before I take you through this, I need to make something clear.
Superannuation is covered by a lot of rules and regulations. Quite rightly too.
So this article isn’t a recommendation. Only someone who takes your personal situation into account can do that.
Instead, I’m just giving you the facts about why it’s such a great strategy.
And if it makes sense, you should get specific advice from a financial planner before taking the plunge.
That being said, we’re helping a lot of clients invest in real estate through their superannuation funds, so we know it works.
How Do You Invest In Real Estate Using Your Superannuation Money?
Now, as I mentioned, this isn’t as easy as buying in your own name.
But with the right people helping you, it’s not a lot of extra work either.
What you need to do is you set up a Self Managed Superannuation Fund (SMSF).
Then you transfer the money from your existing fund into it. From here, you can control what your superannuation is invested in.
There are rules and regulations of course, so make sure you know what your obligations are first.
Real estate, however, is definitely something you can invest in.
Here are a few things you should know upfront.
- There are extra costs. For a start, you need a Self Managed Superannuation Fund which costs money to set up. There are also some extra legal structures as well which also cost money. Plus ongoing compliance. The good news is that all these costs, apart from the setup cost, are paid by your SMSF. They’re not paid out of your own pocket.
- There are some restrictions. One restriction is you can’t invest in a house, then rent it out to someone you know, or use it for personal reasons. It must meet a ‘sole purpose test’ which requires the investment to provide retirement benefits for the fund members. You’re also unable to improve or significantly alter the property. Basic maintenance and repairs are allowed, but any substantial changes that might increase the property’s value are prohibited until the loan is repaid.
Another one is that the property purchased in the SMSF must be a one-part contract, like buying an existing house as opposed to a house and land package which is a two part contract.
- You get some juicy tax benefits.
You’ll love this. Your SMSF only pays a flat rate on rental income (after your expenses). This means instead of being taxed at your marginal tax rate, you only pay 15% tax. And when you sell real estate in your SMSF, you only pay 10% capital gains tax. Better still, once you retire you pay ZERO tax on rental income. It’s tax free!
- You need a 20% deposit in your SMSF to start.
You can’t invest with a smaller deposit, and you have to have this money in your SMSF. And you should have plenty of cash available to cover rental shortfalls or vacancies as well as ongoing compliance and accounting fees. - Your borrowing options will be limited.
Not many lenders like SMSFs. They’re tricky, and you need to set up a Limited Recourse Borrowing Arrangement, which means if anything goes wrong your bank can’t go after you personally.
Understandably, most banks aren’t a fan of this.
This does mean you’ll be required to pay slightly higher fees and a higher interest rate – but, if the numbers stack up long term, it’s potentially a small price to pay for a much larger payoff.
- Asset protection. Property purchased in an SMSF is protected from personal creditors in case of bankruptcy. This means that in the rare event you are sued or go bankrupt, the property you purchased in your SMSF is completely exempt and protected.
What I like the most though is you can invest in an SMSF without it affecting your personal finances.
It’s entirely independent which means you could be buying in your own name, and your superannuation fund at the same time.
Want to know more?
We have trained, experienced consultants who can answer your questions on this.
And they can show you the best properties our clients are investing in right now.
This call is entirely free of cost and obligation. We do this in the hope that if you choose to invest in real estate, you’ll consider asking us for help.
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