How To Buy A Property With Your Super
Interested in finding out more about buying property with your superannuation? Great! Before you jump in, it’s important that you are aware of the limitation and differences between these kinds of investments and your regular property investments.
Here are some of the rules you need to know when buying property through super:
You need to establish a self-managed super fund, first and foremost. You can have up to four members of a super fund, combining all four lots of superannuation. Usually married couples will combine their super together. When you buy property, the property much be solely for the benefit of that fund, or its members.
There are rules around who is allowed to own/sell/rent your property when it’s owned through your SMSF.
- You can’t buy a property from a related party to the member. So, if your sister has a house that you’d like to purchase, you can’t buy it through your super.
- You cannot personally live in the property, and you can’t rent it out to anyone you’re related to either.
- You need to be completely unrelated to anybody who is going to sell you the property or live in it.
Unlike regular property investing, you’re much more limited on how much you can leverage your properties through super. In some circumstances, you can borrow a maximum of 80% of a property’s value, but usually this figure will be closer to 70%. This means that your portfolio growth will be a bit slower inside your SMSF than if you were purchasing the same properties outside of it, where 90% loans are more likely.
Your strategy with investing in property through super is also going to be quite different than investing outside of your super, because you can’t refinance a property to access the equity.
This means that over time, you’ll still need to pay the property down and allow surplus rent to pool into a cash deposit. The way you can grow your portfolio is once the surplus rent has accumulated to cover the deposit and costs of your next property, you can buy another one. Alternatively, you can sell the property, pay the tax, and buy another one.
When it comes to super you must get professional advice from an appropriately qualified and licenced advisor. They’ll also be able to advise you on ensuring that your insurances are in place, as your super comes with a range of personal insurances like income protection, TPD, death, etc.
Investing in property through your super might be a good financial move, but it’s always important to keep the limitations and rules in mind, and seek advice to make sure it will suit your situation. For more information, you can read about superannuation and property investing at the government’s Money Smart website.
Daimien Patterson is the CEO of Integrity Investment Properties, a property investment company based in Australia. He regularly produces books, blogs, and videos on the topic of property investing. Head to [integrityinvestmentproperties.com.au] for your free copy of Daimien’s book, Safe as Houses.