Over the past decade, one property investment strategy has come into its own more than almost anything else.
With superannuation balances starting to show solid balances of hundreds of thousands of dollars, more and more people are deciding to take a lookup responsibility for the future growth of their super accounts.
They are doing this by establishing a Self-Managed Superannuation Fund, or SMSF, and then borrowing money to invest in property.
Using your super fund as the purchasing entity can allow investors to increase their portfolios, but it does come with a number of rules that must be followed as well as additional fees and charges.
These types of property loans are more complex and costly than a standard loan, so it’s vital to ensure you have the funds in your SMSF for the deposit as well as the ongoing repayments.
An LRBA usually requires a larger deposit, such as 20 or even 30 per cent of the property’s purchase price, and the loan often has higher interest rates as well.
On top of that, all property costs – such as rates, repairs and lease renewals – must be financed from SMSF funds.
Other rules include not being able to renovate the property substantially until the loan has been paid off and not being able to negatively gear it against your personal tax rate as it is owned by the fund and not you personally.
However, SMSF trustees can claim depreciation on the property, using the standard 15 per cent super fund tax rate.
SMSF residential property investment also has a number of property rules that must be followed such as:
SMSFs can buy commercial properties, which have different rules again, such as being able to be leased by a business entity of an SMSF member, as long as the commercial market rent is paid.
