Can I use my Superannuation for a property investment?
The short answer to this question is no, you cannot directly purchase investment property via your super.
The long answer is slightly more complex. You cannot use a regulated superannuation fund, such as an industry or a retail super fund, to buy property. You can, however, do so with a self-managed super fund, or SMSF.
What Is a Self Managed Super Fund (SMSF)?
A Self Managed Super Fund is exactly what it sounds like: it is a private superannuation fund that you manage yourself. You may have also heard it being referred to as a DIY super fund. Over 1.5 million Australians are members of Self Managed Super Funds, and many of them cite having better control over their retirement finances as one of the top reasons why they have chosen it over other types of super funds.
How Do I Use My SMSF to Buy Property?
Before you purchase any residential property with your SMSF, you must be aware of a few important rules.
Firstly, you cannot live in or rent any property that has been purchased through your SMSF. Neither can your trustees, nor anyone related to your trustees, no matter how distantly. Secondly, the property cannot be acquired from a related party of a trustee/member. Lastly, the property’s sole purpose can only be to provide retirement benefits to the SMSF’s trustees. This is called passing the “sole purpose test.”
You may purchase commercial property with your SMSF and lease it out to a trustee for their business. However, the rent paid should be equivalent to the market rate—no discounts are allowed. Additionally, the rent must be paid promptly and in full whenever it is due.
Because the process of buying a property with an SMSF can be remarkably complex, it’s best to consult a professional before making any decisions. If you need to borrow money from a financial institution to purchase the property, it will be done through a limited recourse borrowing arrangement or LRBA. The conditions for these types of loans stipulate that the lender can only repossess the property if the loan is unpaid and no other assets of the SMSF can be used to support the transaction’s security.
There are clear advantages to purchasing a property using SMSFs, but it’s best to consult an expert before doing so. Not only can they help you navigate some of the more complex aspects of the process, but they can also show you how to maximise your returns.
Looking to use your self-managed super funds for property investments? Then get started below.
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If you have decided you want to purchase a property within you SMSF or would like to refinance an existing loan, please click the 'Start Here' button below, this will take you to our online Fact-find platform in which you can fill out your details.
We will connect with you within 1 business day to confirm and discuss the next steps.