In this episode of Property Now, we dive into self-managed super funds (SMSFs) and their growing appeal among property investors. Whether you’re a seasoned buyer or just starting to think about your future, this discussion breaks down how SMSFs work, their benefits, and if using your super to invest in property is the right move for you.
What is an SMSF?
A self-managed super fund (SMSF) is a private super fund with up to six members. The members manage the fund themselves, making decisions for their own benefit.
Setting Up an SMSF
Setting up an SMSF requires creating a trust deed, which outlines the rules and operations of the fund. Beyond this, you’ll need to set up a bank account, arrange contributions, and decide on investments.
Costs and Benefits of SMSFs
While there’s no minimum balance to set up an SMSF, it’s recommended to have around $250,000 to $300,000. This ensures the fund is cost-effective as annual management costs range between $3,000 and $4,000. SMSFs offer tax advantages, such as a lower tax rate on income and capital gains.
The Process of Setting Up Your SMSF
- Step 1: Speak to a mortgage broker to determine borrowing capacity.
- Step 2: Consult an accountant to set up the trust deed and manage tax returns.
- Step 3: Get expert advice on the legalities and investment strategy.
SMSFs and Property Investment
Many people use SMSFs to buy property, including residential or commercial real estate. Residential property requires a 20% deposit, while commercial property may have higher deposit requirements. One of the biggest advantages of using SMSFs for property investment is the ability to lease business properties back to your company, generating rental income within the super fund.
Residential vs. Commercial Property in SMSFs
Residential properties are easier to finance but typically offer lower returns. Commercial properties, while harder to finance, often come with higher rents and longer lease agreements, making them attractive to SMSF investors.
Risks and Limitations
SMSFs can’t invest in properties for personal use, and there are strict rules about how properties can be used. Additionally, borrowing through an SMSF involves a "single acquirable asset" rule, meaning properties must be purchased as a single asset, not multiple parcels.
Coposit and SMSFs
Many Coposit buyers are using SMSFs for off-the-plan property investments. Coposit's flexible payment system can be a useful tool for those using their super to buy property, offering a more accessible entry into the market with manageable weekly payments.
Conclusion
An SMSF can be an excellent way to take control of your property investments and superannuation. However, it’s important to fully understand the complexities involved. With the right team of experts, SMSFs can help you achieve your property investment goals.
