Buying Property in Your Self Managed Super Is Property Right for You?

First published in the Coffs Coast Advocate

It has become increasingly popular for self managed super funds (SMSFs) to buy direct property. This always sounds like a great idea but buying real estate inside super can be more complex and costly than people expect.

Before you start looking at property, here are some things you need to consider.

Are you comfortable self-managing your super?

To invest in direct property you will need a self-managed super fund (SMSF). Managing your own super can be time consuming and costly. Plus it’s a major responsibility. Not only will you be managing your entire retirement savings, any misstep can lead to stiff penalties from the ATO. Are you comfortable managing your own super?

What is the investment potential of the property?

As a trustee of a SMSF your primary responsibility is to invest funds wisely. Don’t buy property for property’s sake. Consider the potential income and capital gain and compare these with other investment options.

Is your tax position better inside or outside super?

The super tax rate of 15% on earnings and an effective rate of 10% on capital gains is likely to be substantially less than your personal top marginal rate. Super becomes even more attractive if you hold the property into retirement.

However, if you are thinking about borrowing, be aware that a negative gearing strategy is not as effective inside super as outside because the tax saving is only 15%.

How do you plan to use the property?

The ATO has an “arms length” rule that prevents you from buying, selling or renting a property in your super fund to anyone associated with a fund member. So if you are planning to rent the property to your children or move into it after retirement then don’t buy inside super.

The one except to the “arms length” rule allows a super fund to purchase commercial property and lease it back to a business owned by a super fund member. This is the most frequently use strategy for owning property inside super.

Ultimate Guide to Buying Property in your Self Managed Super Fund

We have teamed up with the experts at Regional Finance Solutions and Your Commercial Property Specialist to develop a comprehensive eBook to help guide you through the risks, rules and regulations.  We recommend you download this eBook and surround yourself with a team of professions before embarking on this investment strategy. DOWNLOAD HERE

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