SMSFs are a popular alternative to Retail or Industry Super funds because they allow for more varied investment options like property. Here is a quick guide to help start things off.
Knowing how to use an SMSF to invest in property is a crucial skill to leverage your investments and create a bigger nest egg for retirement. We don’t advise you to make any financial decisions without consulting an expert with a great track record of helping people successfully achieve the same goals that you have. We do however want to make sure you know what you are getting into so here is our simple 5 Step Guide to buying property through SMSFs.
Why Would I Want To Invest In Property Through an SMSF?
There are a number of advantages to investing in property through an SMSF, including a lower tax rate of only 15% which is considerably lower than a personal tax rate.
Investments in an SMSF also receive discounted capital gains taxes if a property is sold during the accumulation phase and if the property is sold during the pension phase no tax is required to be paid at all.
Property is also looked to as an investment in SMSFs as it is seen as a more stable asset class than Shares or Bonds and allows for far greater leverage.
5 Steps to Start Investing In Property Using an SMSF
1. Checking Your Super Balance Is Sufficient To Purchase A Property
Before going to the effort of creating an SMSF you need to make sure that you have enough money currently in your superannuation fund to purchase a property or consider finding other potential members to create a SMSF with to pool resources and create opportunities that may not have existed outside of an SMSF.
2. Creating Your SMSF
Once you have determined that you can afford to purchase a property through the money that you have in your super you will now I need to create your SMSF. It’s essential to have the correct legal framework and is an absolute must when creating an smsf to work with qualified and knowledgeable people.
3. Will You Be Borrowing? Setting Up Your Holding Trust
If you will be borrowing through your SMSF to purchase your new investment property there are legal structures that will need to be created including the creation of a holding trust or bare trust as well as a bare trustee company. Working with an educated team with the expertise, knowledge and resources will make sure that all parts of your SMSF and Investments within are structured correctly.
4. Creating Your Strategy
Once you have everything set up and ready to go you can start to create an investment strategy just as you would outside of an SMSF, making sure that you know exactly what your motivation is behind the investment, putting in the research and mapping out your gameplan accordingly.
5. Source The Right Property
Now that you have a plan in place you can start to execute accordingly by sourcing suitable properties, negotiating an attractive deal and preparing for the next investment.