The
obvious answer here is to get access to ‘The Great Aussie Dream’, Property
Research Buying Property but in all seriousness, having investment
exposure to residential property will provide diversication from other
super assets such as shares, listed property, cash, or xed interest. Exposure
to direct property offers additional diversity and the potential to
‘smooth out’ returns when other assets are not performing well.
#2 Gearing
Being able
to borrow for an asset adds opportunity and the ability to multiply your
gain. Plenty of Australians are already familiar with this concept through
their family home wherein you will have used a combination of your money and
bank loan to buy a property. While there’s additional regulation (which must
be respected) the concept of using superannuation money plus a bank loan to
buy an investment property is much the same.
For
example, let’s look at the purchase of a $400,000 property using $100,000
cash deposit and borrowing $300,000. If in 5 years that property value has
increased to $450,000, you’ve basically generated a $50,000 capital gain.
Your initial $100,000 investment has grown by 50 per cent. Not bad, right?
Now the actual return metric is complicated by rents, costs, taxes, etc but
my point here is that borrowing has the potential to amplify your gain. But,
beware, it also multiplies your losses in situations where your investing
prowess isn’t as good as you thought it might be.
#3 Tax
Savings
One of the
most common misconceptions I come across is that superannuation is a type of
investment. In fact, this couldn’t be more wrong. Superannuation is a type of
tax environment. The reality is, you can buy a lot of different things with
your super, it’s just not that well known The real story however is that
super has a tax rate of 15 per cent on taxable earnings and 10 per cent on discounted
taxable gains. If you’re over 60 years of age, your tax rate could be zero.
Now consider, you’ve been diligently investing all your life and its time to
slow down and perhaps retire. If you could generate income or capital gains
with ZERO tax how would that compare to owning those same assets in your own
name where your tax can rise to well over 40 per cent?
WHEN
BUYING PROPERTY IN YOUR SUPER FUND MIGHT BE NOT IDEAL
#1 It’s
strictly business – no personal use
Does the
idea of buying a beach-side shack to visit on weekends and Air BNB’ing for
additional cash when you’re not around sound good? Well, unfortunately your
super savings can’t help with this. Firstly, you can’t personally benet from
the property meaning you and your relatives cannot use the beach-side shack
for holiday getaways. A property inside super needs to be purchased with the
sole purpose of providing a better retirement for its members (that’s you).
If buying a beach-side shack achieves this objective that’s well and good,
you just can’t use it!
#2 Delayed
Gratication
The
concept of buying the perfect investment property that meets all your
criteria for above average growth and low rental vacancy for your ultimate
nancial benet is great and all. However, you need to be aware of timing
restrictions around access to this benet. Whilst you can buy multiple
properties and sell these as you wish, the proceeds of quality investment
decisions can’t be personally accessed until you meet a ‘condition of
release’. The earliest conventional opportunity for this is currently when
you turn 57 years of age. Having a good understanding of when you need access
to your capital is a critical decision around buying property in your super.
#3 There’s
a lot of rules; make sure you know them!
The term ‘Self Managed’ suggests
subtly that undertaking this strategy should be failr easy in terms of its
design and implementation. In actual fact, there are a signicant list of
legislative Property Research Buying Property requirements that need
to be adhered to when setting up and managing your own SMSF. Unless you
have a deep understanding of these, it could be easy to fall foul of the law
which could be quite an expensive exercise at best or criminal at worst.
The concept is simple but getting the right advice to make sure you’re always
adhering to the ever-changing legislation affecting this sector is critical.
Here’s our
numbe one piece of advice for anyone excited about the possibility of buying
a property with their super.
Property
in general is not the key to success with this strategy. If you make a poor
investment choice, you will get a poor outcome. Get the right advice, do the
righ research, and buy the right property. Quality investment selection will
significantly increase the porbability of a good investement outcome.
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