subject: Buy Property With A Self Managed Super Fund [print this page] Self managed super funds (SMSF) perform the same role as a normal super fund, but the key difference is that the members of SMSF's are also the trustees. Therefore, you are able to control what you invest in and when your benefits are paid as long as you comply with the superannuation rules.
Self managed super funds can invest in a wide range of investments, including shares, cash, managed investments, artwork and property.
The beauty of a SMSF is that now, Australians can borrow money to acquire an asset. Previously, self managed super funds were prohibited to borrow to acquire investments. For example, if you wanted to buy property, your self managed super fund had to purchase it outright.
New amendments to the Superannuation Act in September 2007 now means that a SMSF can borrow to invest in bigger value assets, including direct property. There is no limit to the type of property your SMSF can purchase, such as residential, commercial, retail, rural and holiday apartments. Please note that it is for investment purposes only and you cannot live in it.
There are many benefits of buying property with your self managed super fund and most banks and lenders can offer up to 75% of the property value, however, this will vary depending on the type of property and lender.
Some advantages to buying property with your SMSF including the following:
1. Allows you to diversify your investments from shares or managed funds
2. Only 10% capital gains if you hold the property for more than 12 months and potentially nothing if the investment property is sold when the super fund is in pension phase
3. Interest on the SMSF home loan is tax deductible, which can potentially reduce your SMSF's tax liability
4. The mortgage lender does not have access to other assets in the SMSF in the event of default
5. Rent generated from the investment property does not count as a taxed contribution
6. Your SMSF can use the income generated from the investment property and benefit from capital growth even if the home loan on the property has not been paid off
7. Other tax savings and benefits available, for example gearing
Before you set up a self managed super fund, it is recommended that you first seek professional financial advice to ensure this is the best option for you. You can speak to a mortgage broker about finding a SMSF home loan that suits your needs.
