Investing in residential and commercial property for professionals and business owners is proving to be a popular self managed super fund strategy thanks in part to the change in borrowing rules and superannuants moving away from listed trusts, shares and managed investments.

Also known as “gearing in super”, since legislation changes in 2007 there has been a steady rise in the number of SMSF members including investment properties in their investment strategy mix.  Over the last 12 months the ATO estimates that nearly $1 billion worth of investment property has been bought this way – further justification that Australians are choosing SMSFs because they want more control of their superannuation.

The advantages of purchasing a residential or commercial property are quite compelling – whilst the quality of the investment property is extremely important, so too are the tax advantages accessible by purchasing an investment property.  Once you commence drawing a pension from your SMSF, you can sell an investment property capital gains tax-free, and the rent from the property is not subject to income tax when you are in pension stage.  Furthermore, with interest rates at cyclical lows, tight rental vacancies and the emergence of young, sophisticated investors, the time is now ripe to set up your own self managed super fund.

How do I get started?

Your financial planner can help you get started by firstly setting up a SMSF on your behalf, then a ‘bare trust” or security trust within that for the purchase of the property to quarantine it from the rest of the super fund.  This is so that if the buyer strikes financial trouble along the way repaying the mortgage loan, the lender will only be able to claim on that property and not on any of the other assets of the fund.

How much can I borrow?

Buyers can borrow up to 80 per cent of the value of the property subject to lenders’ criteria, but ideally buyers should aim to have 30 to 50 per cent of the value within their super fund to cover the deposit and expenses, such as the setting up of the structure.

Is this the right strategy for me?

Depending on your age, how close you are to retirement and your current financial circumstances, investing in commercial or residential property may not suit everyone however with the right advice, you can set yourself up for a comfortable retirement.

Here at The Quinn Group our experienced team of Financial Planners, Accountants and Lawyers can assist you with all your superannuation needs.  For more advice about gearing in super, contact the Financial Planners here at The Quinn Group by submitting an express enquiry or calling us on +612 9580 9166 to book an appointment.