Can I invest in bricks and mortar?
The Superannuation laws changed in 2007 which allowed borrowing within SMSFs for investment purposes. This change made it a more viable option for trustees to purchase an investment property as a part of their investment strategy. If you are looking at an investment property, there are some significant advantages in SMSF Property Investment. However, as is usually the case, there are some disadvantages that you need to be aware of as well.
Owning a residential investment property within your SMSF can be significantly more tax effective than investing in a property in your personal name.
Some of the advantages of SMSF Property Investment are:
- Before retirement phase, net income is taxed at only 15 per cent
- Before retirement phase, capital gains are taxed at only 10% if you have held the property for more than a year
- Once your super fund goes into the pension phase, you pay no tax on either the capital gains or the income from the property
- You get diversification in your portfolio.
Some of the disadvantages of SMSF Property Investment are:
- If the property is negatively geared, the tax offset only applies to other income earned within the fund, not your personal income
- Neither you nor related parties may live in the property
- You can’t renovate the property while it is under a loan
- Set-up costs are high and there are usually higher interest rates involved in getting a loan through your SMSF
- Most lending institutions require a Corporate Trustee structure before they will provide a loan
- Due to the minimum 30% deposit plus upfront fees required to setup the loan, you need a sizable balance in your fund to do so.
It is very important to note that you must not purchase the property in your own name.
At Success in Property we have access to financial planners who specialise in SMSF Property Investment. It is vital that you consult an adviser before making a purchase to ensure the purchase is done correctly. There are known instances of incorrect purchases being made. The rectification of these errors has required the transfer of the property into the correct legal entity which requires another payment of Stamp Duty. These types of errors can be very expensive so don’t make them. Let our experts advise you.
As with all investments within your SMSF, an investment in property should sit within the bounds of the fund’s Investment Strategy.
For a good article on the do’s and don’ts of SMSF Property Investment we suggest that you check out Super Guide.