Benefits of Investing in Property with your Self-Managed Super Fund
For many Australians, the idea of controlling their retirement savings is both appealing and daunting. With the flexibility of a Self-Managed Super Fund (SMSF), individuals can take a proactive approach to their superannuation. One of the most talked-about strategies within an SMSF is property investment. But what exactly are the advantages?
Let’s delve deeper into the benefits of investing in property through an SMSF.
1. Control Over Investment Choices
With SMSF Wizard, you are in the driver’s seat of your investments. This means you have the freedom to choose the type of property you want to invest in. Whether you’re eyeing a commercial space in Sydney or a residential unit in Melbourne, you have the freedom to make that choice based on your research and our support. We will help you tailor your investment strategy to suit your financial goals.
2. Potential for Asset Diversification
By adding property to an SMSF portfolio, it allows members to spread their risk across various asset classes. This can provide a balance between risk and return, and in many cases, real estate has proven to be a resilient and appreciating asset over the long term.
3. Tax Benefits
Investing in property through an SMSF can provide significant tax advantages. Rental income generated from the property within the SMSF is taxed at a concessional rate of 15%, which can be less than personal income tax rates. Furthermore, if the property is sold during the pension phase, the capital gains can potentially be tax-free, if not in pension capital gains as taxed at 10%!
4. Consistent Income Stream
Rental properties, when chosen wisely, can provide a consistent stream of income. This rental income goes directly into the SMSF, boosting its balance and aiding in creating a more robust retirement nest egg.
5. Leverage Opportunities
SMSFs can borrow money to invest in property through a Limited Recourse Borrowing Arrangement (LRBA). Learn more about this in our other article. This allows the fund to potentially acquire a more substantial property asset than it might have been able to with its own resources. Think of it as a way of leveraging the SMSF’s assets for potential capital growth.
6. Asset Protection
A benefit that cannot be underestimated is that properties held within an SMSF are generally protected from bankruptcy or other claims. – This is especially relevant for business owners or professionals who might be at a higher risk of litigation.
7. Long-term Vision
Real estate is traditionally considered a long-term investment. This aligns perfectly with the long-term nature of superannuation. It’s an opportunity for SMSF trustees to benefit from property appreciation over decades, significantly enhancing the fund’s value upon retirement.
8. Residential or Commercial
You have the choice to invest in both residential and commercial properties. If you’re unsure, you can always bounce your ideas around with us!
To give a quick breakdown:
Residential – The residential property cannot be used by you or your associates (typically family of the fund members) at any time. This means you cannot use it as a holiday home. If there is a loan taken against the property, you must use a limited recourse borrowing arrangement, and you are not allowed to make any improvements. However, if you own the property without borrowing, you can make improvements, but you are not permitted to take out a loan for this purpose.
Commercial – You have the option to lease business real property to your associates, allowing you to own the premises where your business operates. Typically, these leases include covering additional costs like rates, water, land tax, body corporate fees and repairs, which are paid by the tenant. This arrangement usually results in a higher rental income compared to residential properties.
Remember, you can own multiple properties in one fund, there is no limit to how many you can own in a fund. You can also buy and sell properties as you see fit, there is no limit to how many transactions you can complete in any given period. There is always the option to employ a real estate professional to handle your tenants and property, relieving you of any stress!
If you’re seeking control over your retirement destiny, investing in property through an SMSF presents a compelling proposition. However, like all investment avenues, it’s essential to approach it with due diligence, informed advice, and a clear understanding of the responsibilities that come with managing an SMSF. That’s where we come in! After all, we are the experts! We know and understand the tough stuff so that you don’t have to! Give us a call on 1300 282 347 if you want to learn more about investing in property with your SMSF.