Get in touch 1300 088 065

How to Buy Property Through Your Self-Managed Super Fund?

Buying a property through a self-managed superannuation fund has become a popular option in Australia. It allows the diversification of investment portfolio, and can minimise the overall risk associated with such investments. There are a number of other benefits associated with it like tax advantages. However, despite having so many advantages, there are a few things you must keep in mind before going ahead.

Property is Bought for Investment Purposes

When you purchase a property, such as a house, through a self-managed super fund, you cannot live in that property. The only reason for putting the money in that purchase is to support the investment strategy of this fund and to save for retirement. However, in most cases, you are allowed to use the place for business purposes, if you are an entrepreneur or have a small business set up. But it doesn’t rule out the obligation of paying rent. You will still be required to make rent payments at a market rate for using the premises.

Diversify Your Portfolio with Self-Managed Super Fund

As the famous saying goes, don’t put all your eggs in one basket. The same is true for investing your money. Whenever you make an investment, the first advice anyone gets is to never put all your money in one financial instrument. Similarly, whenever you make an investment with a self-managed super fund, it is advisable to spread the funds in different assets.

This is definitely an effective investment strategy, as it minimises your risk exposure by enabling you to diversify away from the risk of losing big. Generally, it is considered wise to keep $200,000 in your existing super savings before opening a self-managed super fund and making an investment in a property.

Property Loans related to Self-Managed Super Fund has a Complex Structure

Getting a loan to purchase a property is not simple. In fact, it is comparatively more difficult than taking out a regular home loan. There are a number of requirements you have to fulfil before the loan you have applied for is approved. Moreover, when you intend to purchase a house using the self-managed super fund, most of the financial institutions or lenders are reluctant to loan more than 80% of the property value.

Fees Involved in Self-Managed Super Fund

Before you sign up, it is important for you to calculate the cost involved in it. The following are some of the charges and duties it includes:

  • Stamp duty
  • Advice fee
  • Bank fee
  • Ongoing property management fee
  • Upfront fee
  • Legal fee

Loan repayments have to be made from the fund

The loan repayments should also be made from your self-managed superannuation fund. This means that you must always have sufficient cash in your fund to meet the obligation of repayment. Furthermore, if the loan documentation is not set up correctly, you may not be allowed to unwind the arrangement. This may lead to selling the property and bearing a loss.

This is the reason why it is advisable to always consult a professional who has a great understanding of the market and knows how SMSF works when it comes to buying a property. There are a number of financial institutions that have started offering in-house support for administering the fund. They have introduced a number of services that provide assistance, for example, they:

  • Keep the paperwork in check on a regular basis,
  • Arrange the annual tax and audit returns, and
  • Assist in general compliance arrangements of the fund.

Hunter Galloway can assist you with this process, chat to our team on 1300 088 065.

Once you fully understand the entire process, it gets easier for you to calculate your options and make a decision accordingly. Consulting a mortgage broker is the best way to fully understand your options from a non-biased opinion. This will allow you to figure out whether buying an investment property through a self-managed super fund is the right choice or not, for your goals and also for the fund. Most importantly, always make sure that the investment made in property is in line with your strategy in order to manage your funds efficiently.