More and more Australians are not only considering managing their own superannuation but are deliberating whether to invest that superannuation into direct property.
To invest or not to invest with Superannuation?
Ordinarily Australians considering purchasing property with their superannuation, whether commercial or residential, need to also consider borrowing monies in their superannuation as they do not have sufficient cash to purchase the property outright.
Below we outline some of the common advantages and disadvantages associated with this investment strategy.
• Your superannuation fund will own a tangible asset.
• The value of the direct property is not as volatile as shares, that is the property’s value does not fluctuate on a daily basis as with shares.
• You will have leveraged the value of your superfund allowing for the potential of higher returns.
• Gearing in super may allow you access to assets that you would not have had access to before.
• Your SMSF will receive a tax deduction for the interest payments made.
• By salary sacrificing you are able to receive a tax benefit for paying off the principle of the loan.
• Any income (such as rent) is taxed at 15% in accumulation stage as opposed to your marginal tax rate.
• You have the opportunity to retain the asset until you reach pension stage at which time all income is tax free and the asset is not assessable for capital gains.
• Your fund may lack liquidity. However as contributions and rent build up cash flow may improve.
• The property cannot be used as security on any other loans.
• Funds cannot be withdrawn until a condition of release is met.
• It is only worth what someone will pay for it. The property may be on the market for an extended period.
• If there is no tenant there is no income.
• Your superfund is required to meet interest payments on the loan – however interest can be capitalised.
• If the property is negatively geared, residual interest payments and any other expenses will have to be sourced from contributions.
• You, or a related party are unable to reside in the property, unless it satisfies the business real property exemption. The investment must be at arms length.
• Government legislation may change in the future, which could have an adverse effect on your investment.
• There are annual audit and compliance requirements that need to be met.
For more information on Self Managed Super Funds and their benefits, go to our Self Managed Super Funds page to read more, or feel free to read some of our SMSF blogs in our Financial Planning News section. Our published editorials on SMSFs can also be found in our Editorial Features section.
Quinn Financial Planning has the expertise to help you build your wealth. For more advice on investing in residential or commercial property, contact Peter Quinn here at Quinns by submitting an online enquiry or calling us on +612 9580 9166 to book an appointment.
The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.