Putting away money by setting up a self-managed super fund (SMSF) comes with many retirement benefits and other advantages. Not only does it offer flexibility and independence in controlling how you save your money and expand on your assets, as Moneysmart explains, but it also means making smarter investment choices for your future.

And your SMSF is more flexible than you think. You can manage your funds over time, invest in new shares, or even buy an investment property. Now, we know what you’re thinking: Invest in a property during a pandemic? Is that really a good idea? But the truth is, “recessions create opportunities,” as Afford Anything perfectly states, so investing in real estate right now could actually come with many benefits.

Whether you’re interested in gaining a return on a residential or commercial property, your SMSF makes it possible. Let’s take a deep dive into the exact rules that come with managing your superannuation fund with investment properties in mind, as well as understanding how you can use your super balance to buy a property and how the decision can benefit you down the road.

 

Investing in a commercial or residential property is possible through your SMSF.

Are there specific rules that come with buying an investment property through your SMSF?

Before laying out your SMSF strategy, you should get comfortable with the laws that protect you and your strategy. Knowing the risks involved in making, holding and realising assets, understanding the liquidity of your funds and learning if your fund can pay benefits are critical factors to consider before moving forward with an SMSF, the Australian Taxation Office explains. If you are considering buying investment properties with your managed super fund,there is a specific set of rules in place. According to Moneysmart, the property you’re investing in through your SMSF must:

• Meet the sole purpose test. This test clarifies if you are eligible for the tax concessions that are usually given to super funds.
• Not be gained from a related party.
• Not be lived in by a member of your super fund, or any of the members’ related parties.
• Not be rented by a member of your super fund, or any of the members’ related parties.

There is one stipulation that might be seen as a relation to the renting rule: If you purchase a commercial building with your SMSF, you may be eligible to lease it to another fund member to house their business. For this to be legal, the commercial premises must be leased at market rate. No exceptions.

How do you buy an investment property with your super?

Once you have established that you want to buy an investment property with your SMSF, it’s wise to sit down with your financial planner. He or she can go over your strategy and make sure you have enough funds to cover the costs and make the most efficient use of your super, as Cubbi suggests. Because of the ongoing costs involved with managing your super, it’s important to take your expected cash flow and withdrawal into account to ensure an investment property can turn into capital gains down the road.

A financial advisor can help you determine if using your super fund to invest in property is the best decision.

What are the benefits of using superannuation to buy an investment property?

Generally, your SMSF is a large lump sum and can benefit you widely during your property investment ventures. Some of the major advantages include:

• Accessible property deposit. When it’s time to purchase the property of your choice, you’ll need to have a down payment or deposit ready to go. With enough cash inside your SMSF, you can easily put down your deposit without worrying about paying anything out of pocket.
• Minimised taxable income. If you plan to hold your property investment until your superannuation is going through pension, you may not have to pay tax on your capital gains.
• Ongoing asset protection. Because assets held in your SMSF are protected, you don’t have to worry about your property investment being at the risk of creditors. This can give you peace of mind in many circumstances.
• increase your asset base within your super (or take advantage of leverage through your super fund). With your super, you have the ability to borrow money to invest in a property which allows you to increase your invested asset base. This also means you can earn a return on more invested money.

SmartMoney Wealth Management can help you invest with your SMSF

At SmartMoney Wealth Management, we understand that self-managing your own assets is one of your top priorities. That’s why we want you to consider us as an extension of your investment strategy, not one to overtake it.

While using your super to buy a property is one route, it’s worth looking into other options to decide if it makes sense. One of our trusted financial planners can help you understand the full scope of your investment and if you can expect capital gains and cash flow in the near or distant future.

We know that buying an investment property with your SMSF is the result of your best judgment, so we want to make sure you have all of the necessary information to help you make your best-informed decision. Even the simplest mistakes can lead to big costs in the future, and we want to help you avoid this at all costs.

SmartMoney Wealth Management wants to help you maximise your wealth, enjoy your retirement and make investment moves that will benefit you and your family members down the line. For more information on how we can help you buy investment properties with your super balance, contact us directly today.