Using Super to Buy Investment Properties

Using Super to Buy Investment Properties Melbourne  investment scene often requires more than just knowledge and experience. You also need to be able to come up with the deposit and cover initial costs. One way to make this happen is to use your super funds. But is this a good idea?

To buy a property using your SMSF, you need to have a self-managed superannuation fund (SMSF). This is money you’ve saved over your working life that gets sent to a managed superannuation fund where it’s invested by professional investment managers.

SMSFs have a number of benefits that can be used to assist with investing in property, including favourable tax rates. Any rental income or capital gains on the property are taxed at 15%, which is a significant saving for SMSFs.

Unlocking Property Potential: Leveraging Your Super for Real Estate Investments in Melbourne

This can be an attractive option for first-time homebuyers, especially if you’re looking to avoid Lenders Mortgage Insurance (LMI). But this type of arrangement is not without its risks and should only be undertaken with the help of a qualified financial planner.

For example, if you buy an investment property through your SMSF, the trustees need to approve a Limited Recourse Borrowing Arrangement (LRBA) with a bank. The LRBA will allow your SMSF to borrow up to 70 per cent of the property’s purchase price, which can be used as a deposit to buy the property. You also need to ensure the property you’re buying meets the SMSF rules, such as being within a 50-kilometre radius of a capital city or 35 kilometres of a major city.