Many investors have been encouraged to invest their super into property after the fallout from the GFC in 2008 when account levels were severely reduced and the fact that many popular super fund options have shown poor returns over their life time.
What investors like about selecting property for their retirement is it’s classed as a defensive growth asset that provides strong and stable capital growth over all economic growth cycles.
Here are some tips around SMSF property investing
Tax advantages of buying property in SMSF
1. You can use concessionally based income to build up your super funds that are taxed at 15% versus your marginal rate which can be as high as 46.5%. You can then use these funds to purchase a property.
2. The maximum rate of tax your SMSF will pay on rental income is 15%
3. After holding the property for more than 12 months, any capital gain made on the sale of the investment property will be taxed at a maximum rate of 10%, or 0% if the SMSF is in pension phase.
Borrowing to buy property in your SMSF
First of all determine if borrowing to fund a property purchase is an appropriate strategy for your fund, typically you need 20% of the property value as a deposit inside your fund.
1. Utilise your accountant and financial planner to assess your plans to buy property through your SMSF and set a budget. Ensure they are fully licensed and their advice is independent of the property agent you use to avoid conflict of interest.
2. Source which property you want to buy that fits your budget and reach an agreement with the vendor that you’re ready to sign the contracts of sale once your lender approves.
3. Arrange the loan and finalise borrowing arrangements with a lender including final loan approval.
4. Decide on a custodian or find out if the lender requires the custodian to be a company, and then get the custodian to sign the sale of contract.
5. Organise the deposit for the property from your SMSF funds and sign all loan documents with your lender.
6. Submit relevant paperwork depending on your state for payment of stamp duty where applicable in timely manner to avoid extra costs.
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