Property in super for the long-term

Borrowing to invest in property within the tax-friendly superannuation environment first became legal in 2007. Since then, Australian SMSF balances have grown to a whopping $1.5 trillion.

One of the reasons SMSFs are so popular is that your superannuation balance can be used as a deposit when borrowing money to purchase property.

We can check that purchasing property inside super is a good fit for your specific circumstances. We can also arrange every part of the process, including establishing the fund, rolling over benefits, arranging finance, sourcing the property, implementing the insurance and estate planning requirements, and performing the annual audits and tax returns. We’ll make sure your SMSF works for you.

If the correct financial analysis is performed, and an appropriate property is acquired, there should be no need to ever subsidise the investment from your own pocket. In this way, property in super is a long-term, set-and-forget strategy.

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A typical property in SMSF scenario

A husband and wife who share the same long-term investment objectives decide to combine their super balances. One person has $90,000 in two different retail funds and the other has $60,000 in an industry fund. They establish an SMSF and an appropriate trustee structure, then roll their entire balance from all three funds into the new SMSF.

The couple then uses $80,000 of their super as a 20% deposit on a $400,000 residential property. Another $20,000 is used from the SMSF to cover stamp duty and other purchase costs. They borrow $320,000 from a bank to complete the property purchase. The SMSF will still contain $50,000 that wasn’t used for the purchase. This $50,000 can be held in a combination of shares and cash investments, providing liquidity and diversification to the portfolio.

Free SMSF Consultation

Up to 2-hour free consultation to explain everything involved in setting up and running an SMSF, including investment strategy, insurance obligations, and trustee structure.

Find Out How to Manage Your Super Effectively

Purchasing a property with an SMSF

When you purchase property inside an SMSF, the bank lends money under a limited recourse borrowing arrangement. This means that the loan is secured only by the property that was purchased. The lender does not have access to the balance of your superannuation in your SMSF.

These arrangements are quite secure from the lender’s perspective, as the overall strategy is usually positively geared. This means that the SMSF receives regular payments from rental income, superannuation guarantee (SG) contributions (currently 9.5% paid by your employer), any additional salary sacrifices you may choose to make, and the income earned by your cash and share investments. All ongoing property expenses, including the interest on the new loan, are paid from the SMSF.

Ready to use your super to invest in property?

There’s value in seeking advice early on, even if it’s over the phone. If you have questions call:

How to buy property in super

Stephen Vick (Director of Nexus Private Wealth Management) discusses the distinct advantages of holding property within super and explains how you can purchase property with your superannuation.

A proper financial analysis, combined with the appropriate property purchase, should ensure that you never have to subsidise a property investment in an SMSF.

There are also many other benefits to this strategy, such as:

  • The property deposit and all acquisition costs are paid using pre-tax super monies.
  • All rental income received is taxed at 15%, not at your personal marginal tax rate.
  • Capital gains tax is reduced to 10% if the property is held for more than 12 months (and to zero if the property is held to retirement then converted to an account-based pension).
  • Direct property investment can provide diversification and reduce the overall risk to your superannuation portfolio.
  • When purchasing property within an SMSF, there are no margin calls requiring you to deposit further cash.
  • You can pool your balances with relatives (up to a maximum of four members) and increase your leveraging and purchase options.
  • There’s no limit on the number of properties you can acquire within the fund.
  • You have control over everything that’s invested within the SMSF.
  • You can sell the assets when the timing suits you and minimise your tax liability.
  • In the event of your death, the distribution of assets can be structured in a tax-effective manner and the benefits distributed without fear of contest.
  • You can pay your insurance premiums (life, income protection, and total and permanent disability) with your super monies.

If you’re planning to purchase property inside super there are some things to consider:

  • Not all banks provide limited recourse borrowing arrangements.
  • The lender’s serviceability criteria will differ from a standard property purchase outside of super.
  • Not all properties can be purchased within an SMSF, so the number of suitable properties is smaller than the general investment property market.
  • The lending arrangements, the trustee structure, the type of property, the taxation implications, and the overall cash flow position of the SMSF all have an affect on each other and should be considered before purchasing a property.
  • The sole purpose of the SMSF is to provide for your retirement, so fringe benefits such as purchasing a property from a related party or using the property as a holiday home are not allowed.
  • The cost of running an SMSF can be greater than or less than the overall running cost of a retail or industry fund, depending on the size of the fund and the overall investment composition.
  • The acquisition costs of a property can represent a larger total management cost than that of holding shares. This is usually reversed over time.
  • As with all superannuation investments, you cannot access the fund for personal use until you meet a condition of release.
  • The SMSF must be audited annually. The cost of this can be reduced with simplified reporting approaches.
  • The SMSF trust deed must allow for borrowing within the fund and contain a documented investment strategy.
  • The SMSF trustees must consider appropriate insurances as part of the investment strategy.
There are many obligations and responsibilities for trustees of an SMSF. Significant criminal and financial penalties may apply if you don’t meet these.

Professional advice

Professional advice from a qualified financial advisor can give you peace of mind that you’ve got everything covered. The team at Nexus are specialists in SMSF strategies and investment property acquisition.

Choosing the right property

We can assess the appropriateness of purchasing property inside super for your specific circumstances. We can also coordinate every part of the process, from establishing the fund, rolling over benefits, arranging finance and sourcing the property through to implementing the insurance and estate planning requirements. Our long-term approach will support you from the strategy establishment process through to the ongoing supervision and performance reviews.

What our clients say…

For many years my husband and I struggled with where to go for financial advice. We wanted somewhere that was a one stop shop and to find an adviser who would look at our whole of life needs now and for the future and be able to tailor solutions accordingly. Someone who would take the reins in some ways, to take the pressure off us, set it all up, monitor and manage it all for us. We wanted someone who would be genuinely interested in what was the best for our family and not just pretend to be ... Read More

Gillian & Jeffry
Heritage Park

I have been a Nexus client for nearly 3 years now. They have always been there for me, even just to touch base when I was unwell. Nothing is too much trouble and the effort they put into finding and giving you the best comprehensive advice is tremendous. They have all been a pleasure to deal with and I feel so comfortable with them I am using them more and more for my wealth management. Super, Insurance, Property, financial planning, mortgage brokering and my accounting now all in one place. I ... Read More

James & Lisa
Hope Island

Sonya and I have been a Nexus Client since 2012 and in that time the global economy has been subject to volatile property and share market fluctuations often ending in negative growth for most investors. The investment strategies Nexus have provided us with have improved our financial position during these challenging times whist also positioning us for future growth opportunities when they arise. A combination of having strategies in place and the ongoing coaching by the Nexus staff to better ... Read More

Mick & Sonya
Kirwan

It has been a pleasure working with John. My first contact with him was over the phone when I was really overwhelmed with multiple decisions I needed to make to clean up my finances. He has provided clear and concise guidance to both myself and my partner reducing the stress around changing things for the future. His presentations are clear, he takes his time and really goes above and beyond what he needs to do in order to please his clients. I have since referred several of my close friends and ... Read More

Dr Heidi & Dean
Tarragindi

I first went to Nexus about 18 months ago at which time I had just left the army and started my own business. Nexus did something I suspect very few wealth management companies would have done. They advised me to NOT pay them and wait until I was in a better financial position. This instantly tells me they are an ethical and people centric company. They could have taken my money and put me in a position of high risk, but they chose to forgo a commission to give me the most honest response possible. ... Read More

Neil
Albany Creek

We have been with Nexus right from the beginning. When we decided to start a SMSF we wanted to go with a company that could do it all. Nexus provided us with that. They know everything about us now and look after our SMSF, Trusts, business tax and personal tax. Every member of their staff are knowledgeable and approachable. We are so happy and fortunate to have found Nexus. They have made our life so much easier.

Kellie
Camira

I’ve used Nexus for creating a SMSF, tax, legal and estate planning. Great team, great value and great advice over the last year.

Andrew
Morningside

We have had a great experience with Nexus. They were recommended by family and we too would recommend them to anybody. Steve and John took the time to explain everything and never used pressure tactics. They also made sure they really got to know us and our goals before making a plan.

Rachel & Leon
Burpengary

Nexus has helped my wife and I establish a holistic financial plan, including long term financial planning, as well as the recent purchase of an investment property.
Stephen and his team have always gone to the effort to understand our personal priorities, and we trust their views and advice which is informed, balanced and focused on our best interests. We highly recommend Nexus Private Wealth Management to anyone who needs financial advice.

Brett & Belinda
Heritage Park

My wife and I have been working with Nexus for a number of years now and outside of the financial advice, we have stayed for two main reasons. Firstly, the customer service is second to none and as the Nexus business grows, they manage to employ staff with the same focus on serving the customer. Secondly, the complete service offering means that we don’t need to find different providers for our super, versus our business needs versus our personal tax.

Martin
Camira

John has been working with my partner Jarryd and I for roughly six months to one year now, we are both young professionals and were looking to buy our first house. Obviously not knowing anything about the property industry or setting up long term wealth in general we really wanted to set ourselves up for the best chance of success. After meeting with John and the team at Nexus there was no question in our minds that we were going to utilise their services. John has spent copious amounts of hours ... Read More

Sarah & Jarryd
Kedron

Nexus are great! The support and tailored advise received has been very beneficial. We now have long term financial goals to set ourselves up for the future. I would highly recommend them to anyone looking for financial advice.

John & Sharleen
Loganholme

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