Using Your SMSF to Invest in Real Estate


Most Australians dream of achieving financial independence by the time they retire. A self-managed super fund or SMSF is one of the most popular financial instruments that can help make this dream a reality. Unlike retail or corporate super funds, an SMSF gives you full control of how you want to grow your pension.

The most popular use of an SMSF is purchasing investment properties. In simple terms, you’re directing your savings to pay off the deposit and mortgage of a property, which you will then either rent out or sell in the future. However, using this method requires careful consideration.

What is an SMSF

An SMSF is a retirement savings account that you manage yourself or with your fellow trustees. It can either be an individual trust where members can be your spouse, children, or other family members, or a company trust, where the company acts as the legal trustee and the fund is managed by up to four directors. Like in most DIY routes, you’re fully responsible for your investment strategy and tax obligations, among other things. If you choose to invest in property, that would also mean that you are fully responsible for managing the property.

However, it comes with some restrictions, as well. For instance, you and your family members are not allowed to live in the property, and you’re not allowed to rent it out to relatives. You’re also not allowed to invest in A-grade properties and properties in high growth areas.

Benefits of Using an SMSF to Buy Property

One of the main draws of an SMSF is that you’re not leaving your hard-earned money to people you don’t know. Another is if you’re borrowing through Limited Recourse Borrowing Arrangements (LRBAs), you’ll receive the interest earned but the legal ownership will be held on the trust. This means that the property is separate from your assets and liabilities. With an SMSF, your super will also be taxed at 15 percent, which is much lower than most people’s tax rates.

Your income tax (if you rent out the property) and capital gains tax (if you sell the property) will also be discounted. An SMSF could also mean a higher purchasing power or borrowing capacity since you’re combining your super with other trustees. This means that you have more freedom to choose what type of property to invest in.

beautiful house

Strategies for Success

1. Invest in positive gearing properties

Even with grade-A properties out of your list of options, there are plenty of other suitable properties you can invest in. For example, if you’re going for the residential market, properties in growing middle ring suburbs, such as affordable house and land packages in the Western Suburbs of Melbourne, are your best bet. As you diversify your portfolio, you may even look into commercial properties such as office spaces and retail centers as they offer high rental yields and a steady occupancy rate.

2. Hire a property manager

Property investing is not a “set it and forget it” strategy. Success will require your full attention. If you simply can’t find the time to focus on your investments, the wise thing to do is hire a property manager to do the heavy lifting for you. Property managers will ensure your tenants are happy and on top of their rent. They will also make sure your rentals don’t go vacant for a long time so you don’t lose income.

3. Use techniques to grow your income

There are many strategies to increasing your returns from an investment property. If you’re running an apartment or office complex with multiple units, create ancillary income from services that tenants will need. Vending machines, laundry service, and convenience stores are great examples.

Before you jump into this investing route, make sure you have a solid plan in place and a team of real estate investing experts and consultants who can guide you in the right direction.

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