Should I use my super fund to buy an investment property?

| August 30, 2017

super fund investing australia

The number of people using their self-manage super funds (SMSFs) to buy an investment property has been on the rise over the past decade, but is this strategy right for you?

Since regulations changed in 2007 which allow investors to borrow money with their SMSFs, the number of people buying investment properties through their super has increased.

The changes essentially unlocked a large pool of money and, subsequently, many companies (developers and property marketers) emerged claiming to be able to help investors establish SMSFs and assist them in buying an investment property.

While SMSFs are classed as a financial product and are heavily regulated, regrettably the property industry isn’t, leaving it susceptible to unscrupulous operators.

Unfortunately, it’s not uncommon for some companies to receive kickbacks for recommending investors buy particular properties.

These are typically new or off-the-plan properties which look like good investments on paper, but turn out to be second-rate assets that underperform.

For those who set up SMSFs, there are considerable legal obligations about how the fund is structured and managed. In some cases there can be compliance issues if the property underperforms, and the investor may face penalties.

When considering using an SMSF to buy an investment property, it’s important to ensure that this fits into your retirement planning and investment strategy.

Property investing needs a long-term view (i.e. it’s not a get-rich-quick scheme) which is why it requires careful planning and a thorough understanding of the asset in question. Not all properties perform the same, and different types of residential properties offer different benefits (whether that be capital growth, rental returns, depreciation benefits etc.).

It’s important to note that buying a property via a SMSF can be very complicated and take longer than it would buying a property outside a fund. This is why it’s crucial to source reliable and independent investment advice before choosing to take this path.

Buying an investment property is one of the biggest financial decisions you’ll make, so it’s important to source the right advice.

Investors need to seek the appropriate specialist financial and legal advice to establish an SMSF, before engaging a reputable property investment consultancy to help identify the most suitable type of property for their circumstances.

This should include your financial obligations and your goals for retirement before discussing the type of property that is most suited for you.

However, buying an investment property via an SMSF isn’t for everyone but it should be at least considered as part of your retirement planning.

Please note that this article is not legal or financial advice and must not be relied upon as such. The information is intended only as a guide, and specific information related to your personal circumstances should be sourced from relevant specialists.

Author bio:

Damian Collins is the founder and managing director of property investment consultancy Momentum Wealth. Offering market leading research and advice on the Australian property market, the company helps clients accelerate their wealth through property investment by assisting them in the strategic planning, financing, acquisition, management and development of their commercial and residential investment properties. Damian has completed a Bachelor of Business at RMIT University and a Graduate Diploma in Property at Curtin University. Damian is the Deputy President of the Real Estate Institute of Western Australia (REIWA).

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