If you’re looking to take control of your superannuation and invest in property, Self Managed Super Funds (SMSFs) might be the perfect vehicle. SMSF loans enable you to leverage your super balance to purchase property, but they come with specific rules and considerations. Financial expert Werner Jansen from Financial Purpose recently shared his insights on the UNO Home Loans podcast. Let’s explore what you need to know about SMSF loans and how to get started.
What Is an SMSF Loan?
An SMSF loan is a limited recourse borrowing arrangement (LRBA) that allows an SMSF to purchase property. Unlike traditional loans, it requires specific structures and conditions:
- Property Ownership: The property is held in a bare trust while the loan is active, separate from other SMSF assets.
- Single Acquirable Asset: The loan must fund one property under one contract (e.g., not land + construction).
- No Equity Withdrawals: You cannot draw equity from the property to fund other purchases.
These restrictions protect the SMSF while enabling you to benefit from property ownership under a tax-effective super structure.
Why Consider SMSF Property Investments?
- Tax Benefits:some text
- Superannuation assets enjoy a 15% tax rate during accumulation.
- Once you reach retirement (age 60+), the tax rate on income and capital gains can be 0%.
- Leverage (Gearing):
With SMSF loans, you can use your existing super balance to borrow funds and acquire higher-value property. For example:some text- $200,000 super balance + SMSF loan → $500,000 property investment.
- Over time, rental income and capital growth enhance your super’s value.
- Long-Term Wealth Building:
Property can deliver both rental yields and capital appreciation, helping fund your retirement.
Are You Ready for an SMSF?
To determine if an SMSF and SMSF loan make sense for you, Werner recommends two key criteria:
- Super Balance Threshold:
A minimum balance of $200,000 is generally required to justify setup costs and achieve diversification. - Sustainable Contributions:
Your family’s income should ensure you can contribute to the SMSF regularly, so you’re not entirely dependent on rental income to cover any mortgage and can continue to invest in other asset classes to avoid concentration risk (see below)
Common SMSF Property Pitfalls to Avoid
While SMSFs offer opportunities, they aren’t without risk. Werner highlights key mistakes to avoid:
- Poor Property Selection: Avoid speculative decisions. Engage experts like buyer’s agents to ensure the property yields growth and income.
- Overconcentration Risk: Don’t rely solely on one property. Aim to diversify into other assets like ETFs or shares.
- Underestimating Costs: Setup and ongoing costs, such as accounting fees ($3,500 annually), must be factored into your plan.
Building Your SMSF Property Team
To maximise success, surround yourself with the right professionals:
- Financial Advisor: Run feasibility assessments and develop your strategy.
- Accountant: Set up your SMSF, handle rollovers, and ensure compliance.
- Mortgage Broker: Secure the best SMSF loan tailored to your needs.
- Buyer’s Agent: Source high-performing investment properties.
The Numbers Don’t Lie
Werner stresses the importance of “running the numbers.” A well-selected SMSF property can make you 20–25% better off than traditional super over 20 years, thanks to the power of leverage and tax efficiency.
Ready to explore SMSF Property Investment?
Before making the leap, ensure an SMSF aligns with your goals. If you’re serious about taking control of your super and exploring property investment, speak with a financial advisor and run the numbers.
Key Takeaways
- SMSF loans allow you to leverage your super to invest in property.
- A super balance of $200,000+ and sustainable contributions are key prerequisites.
- Proper planning, diversification, and professional guidance are critical for success.
For more insights, listen to the full UNO podcast featuring Werner Jansen from Financial Purpose.
If you would like to explore your options and feasibility to use your super to buy property start with a free, no obligation session with Werner from Financial Purpose. Read more at their website at https://financialpurpose.com.au/
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