Rise High Financial Solutions

header logo of Rise High - Award-winning mortgage Brokerage Adelaide

(08) 7131 1149

Using Super to invest in property

SMSF have grown significantly in popularity and it’s easy to see why! If you’re consider using super to invest in property we have all the information you want to know!
Share this article with friends and family:
Facebook
Twitter
LinkedIn
Email
WhatsApp

Using Super to invest in property

SMSF have grown significantly in popularity and it’s easy to see why! If you’re consider using super to invest in property we have all the information you want to know!
Share this article with friends and family:
Facebook
Twitter
LinkedIn
Email
WhatsApp

Keep reading

There’s a lot of information out there about using super to invest in property… it can be really confusing and very overwhelming. Marissa, Chris and Kristin are all pros when it comes to SMSF and they answered your questions!

What is a Self Managed Super Fund (SMSF)?

SMSF is really no different to a superannuation fund. The main difference is the structure. You as the owner of the SMSF have all the control over what happens with the fund and the investments within the fund.

They’re also more of a Trust structure. So instead of having super with an industry fund or bank run fund, you’re controlling the investment strategy. This is a really attractive feature!

Pros and Cons

A major positive is the control you have. Getting to control and decide what happens to your own investments is important and it’s the only fund that will allow you to do that for your superannuation. Other funds don’t have the empathy and understanding for what you want to do with your money. It’s a really positive thing that people want to talk control of their own money and invest it however they think is best for them. Of course one of the biggest benefits… you can purchase property. This is not something you can do in a traditional superannuation fund.

A really big con is that you can’t access the equity in a SMSF property. It is absolutely a supplementary investing strategy and shouldn’t be your main property investing strategy. It can also be pretty pricey.

Can you borrow through a SMSF?

This is another amazing benefit of a SMSF. Even if you have exhausted your normal borrowing capacity, you can still borrow through your SMSF. Most banks will only take into account the rental income you receive from that property, plus the contributions that are going into your super fund. This is usually 9.5% based on your PAYG income. So if you can afford to service the line of credit from that allow, there is no reason for the bank to look outside of that. So even if you have no personal capacity left for a loan, you can still invest with you SMSF.

Is there a minimum balance?

We have some great news… there is no minimum amount to set up a SMSF! While you can technically start a SMSF with $1, it might not be the best financial option. You do need a larger amount to make it worth your while. This is mostly because of the fees that are involved. The superannuation industry believes you need a balance of at least $200,000 to justify a SMSF. This seems like a lot, but you don’t need to foot the bill yourself!

You can combine your SMSF with up to four other people. This means you only need a combined total of $200,000 to make it work. And you can do it with anyone, not just family. It can be a really tax effective way for business partners to invest. There are countless examples of how this structure could work.

What does it cost?

All funds come with a cost and SMSF are no different. There is a large upfront cost involved with starting one up. They are more expensive than a standard residential loan. They also have a much higher interest rate. But don’t let this frighten you. They are still giving you an investment option that you wouldn’t have had previously. Just make sure you run some numbers before you decide what you’d like to do.

What else should you know?

There are some pretty strict rules around managing super funds. So it’s important to have the right professional who knows what they’re doing and has the resources and time. There’s a lot of legislation and red tape so getting someone you trust on the case is crucial. Shop around and consider the fees before you settle.

Some of the restrictions that apply are to do with renovations. You can’t substantially change the nature of the property. You might be able to replace the roof, polish the floor boards or make small additions to the property. SMSF is a really great strategy to supplement your current property investment strategy. It’s definitely not a stand alone strategy.

Using super to invest in property can be a great strategy if you’re already a property investor!

We know the process can be confusing so contact the team at Rise High to find out more and secure your future even further!

Our suggestions for you:

Mortgage Brokers Tarkin Brown and Priya Ravi talking about the team you need to buy a new house

Buying a house – The 7 professionals on your A-team!

Unsure who should have your back when looking to buy your new house? We’ve got you covered!

Stay tuned as the Rise High team demystifies the role of each expert you should have on your home-buying team.

From understanding the benefits of a Buyer’s Agent to differentiating the roles of a Conveyancer and Solicitor, we’ll delve deep into the professionals you want to include in your A-team!

What are Construction Loans?

What are construction loans? Listen in as Marissa and Thuy answer your most common questions about financial considerations throughout the construction process.