ATO rule changes have seen a rush of SMSFs getting into property mainly due to changes introduced in 2007 that in effect allow funds to borrow to buy an asset. By investing in property, and with the right strategies and advice, you can successfully set yourself up through your SMSF to achieve your retirement goals, retire comfortably and save tax at the same time.
So what are the most important things to consider when buying an investment property within your SMSF?
Ask yourself the following questions:
1. Does it make good commercial sense?
2. Does the property investment fit in with the investment strategy of my fund?
3. What’s its growth potential?
4. Are there any tax benefits?
For an investment property to be commercially viable, the superannuation fund must derive sufficient rent and members contributions to cover the monthly loan repayments and property costs such as water and council rates, body corporate fees, property repairs and property management fees etc. Hence, the greater the rent and the lower the borrowings and property costs, the more viable the investment is likely to be.
Another critical factor when purchasing an investment property with your superannuation is how long you intend to hold on to the property. For example, if you are a 50 year old who plans to buy the property and pay it off in the most tax effective manner and live off the rent in retirement, this is definitely a strategy to consider.
If on the other hand you are a 30 year old looking at a block of land to sell in five years time with the view to buying a bigger home, this is not the best option, as in five years time you will not be able to take the capital growth out of your superannuation fund to buy a home.
If you prefer direct property investment other than shares, managed funds or property trusts, you should consider this strategy for your superannuation as a result of the favourable law changes to the SIS Act in 2007.
Whilst rental return is very important, so too is future capital growth – you invest to make money and it makes sense to make decisions that will mean you make the most money with the minimum effort. The properties you buy should have the potential to double in value every 7 to 10 years.
There are generous tax benefits associated with buying an investment property through a fund. Super funds pay only 15% tax on rental income and 0% when the fund is paying a pension to members over the age of 60. Properties in super funds also don’t attract capital gains tax when retirees over 60 sell the assets. Tax deductions can be achieved through salary sacrificing.
At The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can assist you with all your investment strategies. For more advice about how to invest in your Self Managed Super Fund, contact the Financial Planners here at The Quinn Group by submitting an online enquiry or calling us on +612 9580 9166 to book an appointment.