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Using your super to buy an investment property

Investing in property is a wise vehicle for long-term financial security and potential capital growth. For many Australians, their superannuation is their largest asset, so you may be considering using it to invest in property. Using your super to buy an investment property can provide a way to diversify your investments, but there are also a lot of factors to consider before you take these steps. In this article, we’ll provide an overview of using your super to buy an investment property and some things you’ll need to consider to help you make an informed decision about whether it’s the right option for you.
This information is by no means exhaustive and we encourage you to seek advice tailored to your unique situation before making any decisions.

What kind of property can I buy with my superannuation?

You can use your super to buy investment properties, but only if you set up a Self Managed Super Fund (SMSF). Setting up an SMSF can give you more control and visibility over your investments, but it also requires more administration and compliance tasks than holding your super in a regulated fund.
With your SMSF, you can buy commercial or residential investment property. The property must be located in Australia, and there is no limit on the proportion that property makes up in your total SMSF holdings or limits on property values when it comes time to purchase.

What are the benefits of buying an investment property with my super?

There is a range of benefits to buying an investment property with your super, from tax advantages to the ability to generate more retirement income. Of course, everyone’s situation is different and some of these benefits will differ based on your unique circumstances…
Perhaps one of the biggest advantages of buying investment property through super is the Capital Gains Tax (CGT) discount available, which is capped at 10 per cent for real estate purchased with an SMSF. And if you take out a loan to buy your investment property, you can claim a tax deduction for the interest accrued on the loan.
By buying an investment property with your super, you can also pay off your loan faster through using rental income plus your super contributions. If you’re then looking to grow your portfolio, you can use the equity you build up in the property to buy your next one. If there is no mortgage on your property, you can use the income generated from the property to fund your retirement income.

How do I get a loan to buy an investment property with my SMSF?

When you take out a loan to buy an investment property through your SMSF, it is called a Limited Recourse Borrowing Arrangement (LBRA). The SMSF trustee takes out the loan and uses it to buy a property in the SMSF. As a non-recourse loan, the lender can only use assets held within the trust to repay debt if the buyer defaults. This can provide additional protection and separation between assets.
Buying property through your SMSF may provide you with more choice and control over the assets that make up your retirement nest egg. However, with all the benefits it provides, there are also factors to consider, such as the administration and compliance burden and the risk of having property making up a large proportion of your portfolio.

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.

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