WEALTH HUB JOURNAL

How to Buy Property with Super: Your Complete Guide

If you want to become financially independent and retire well in Australia, you can leverage your super to help you purchase investment property. However, the process can be complicated and confusing, so it’s important to enlist expert help to ensure you get the most for your money. At Wealth Hub Australia, we will help you make the choices today that will help you build wealth, achieve your dream retirement, and create a legacy that you may have never thought possible.

Acquiring property via a self-managed super fund (SMSF), especially in high-growth areas, can be challenging. There are rules and regulations that can complicate the process if you aren’t well-versed in the particulars of an SMSF. Wealth Hub Australia’s proven strategy can help you retire successfully with real estate purchased through superannuation.

We’ve put together some information to introduce you to our process. We hope it clarifies how to get started with property via an SMSF, and that it helps you make the right decisions for your future.

Contact our team at Wealth Hub Australia today so we can help you achieve financial security.

• What Is An SMSF and How Can It Buy Real Estate?
• Why Should You Use Your Super to Build a Real Estate Portfolio?
• What Regulations Do You Need to Follow When Investing Your Super in Property?
• What to Consider When Investing Your Super in Real Estate
• Do You Need to Enlist Professional Services?
• Ask Your Advisors These Questions
• You Buy Property with Super—What Happens Next?
• Get Started Buying Property with Super Today

What Is An SMSF and How Can It Buy Real Estate?

A self-managed super fund (SMSF) is unique in that, like the name suggests, you manage it yourself. Up to four trustees can be named on the SMSF, and you all share the responsibility for managing it and following all taxes and regulations.

This gives you freedom to invest it however you want. It’s a powerful alternative to other investment strategies, and you can leverage it to set you up comfortably for retirement. However, since the burden of managing the fund rests on you—along with all tax and legal requirements—our team at Wealth Hub Australia can help you get the most from your super and ensure you stay compliant with all regulations.

One of the first things we’ll help you decide is the level of income you’ll need for retirement, and then we’ll work with you to find the best investment properties for you—and how you can use your super to buy them. From there, passive income from these investments accumulates each time your tenants pay rent, and this streams right back into your SMSF.

If you aren’t in a financial position to acquire property now, we can introduce you to financial advisors that will help you borrow against your super to take out a loan. Note that there is a distinction between your personal finances and borrowing through your super, and each are assessed differently.

Why Should You Use Your Super to Build a Real Estate Portfolio?

Property investment is generally a smart long-term strategy. There is typically less risk involved than investing your money in shares or keeping it in cash. Plus, it can supplement your SMSF and put you in a position to retire the way you want to.

With the associated tax breaks and the ability to actually make money off of your borrowed money, the advantages of leveraging your super to buy investment property can be tremendous.

Many investors will tell you that property is a secure investment that is less vulnerable to the whims of the stock market and inflation. No one can predict exactly how your property investment will grow, but traditionally it is a route that shows steady growth, despite the inevitable property market fluctuations.

What Regulations Do You Need to Follow When Investing Your Super in Property?

The rules surrounding your superannuation are decidedly complex, but our team at Wealth Hub Australia will walk you through the legal aspect while minimising headaches.

As stated earlier, your SMSF is a unique investment option, and using it to build a real estate portfolio doesn’t follow the same rule book as any other loan you’d get from the bank. The location, age, and other factors of the property you want to acquire may affect the rules and regulations you have to follow.

Here are the top factors that can impact which properties you can buy through your SMSF, and what you need to consider:

1. Will the bank approve?

As with any property purchase, talk to the bank when buying real estate through your super. The newer the property, the more likely you will get approval from the bank. Increased resale value, lower maintenance costs, stronger rental demand, better tax benefits, and warranties that are still in effect all make newer properties more attractive to the bank.

Plus, as the new owner, you would probably pay less in upkeep than you would for an older property where maintenance issues would likely be more frequent.

2. Is the property cash-flow positive?

Will your passive income through rent be higher than what you have to spend on the property? If the money coming in is relatively close to the amount of money going out, that’s considered a neutral cash flow. That’s obviously better than negative, but it’s still a low return on investment.

For an ideal investment property, you should aim to get back at least 4.7% of what you paid for it each year. Rental yield will be lower in the largest cities, so smaller “major” cities may be a better place to look.

3. Where is the property and is there demand?

If there isn’t high rental demand in the area, it may be better to choose a property in a high-growth location instead. This is generally within 50 kilometres of a capital city or 35 kilometres of other large cities with a population of 100,000 people or more. These high-demand areas often have extremely low vacancy rates, so it can be a wise investment to purchase property there.

4. Does it offer personal gain?

To purchase an investment property through your SMSF, you can’t stand to gain anything from it personally. That means you can’t live there, your friends and family can’t live there, you must hire licensed tradespeople for all maintenance, a third-party management team has to organise the property, and you can’t renovate the property or improve it in any significant way.

What to Consider When Investing Your Super in Real Estate

The legal requirements of your purchase aren’t the only things to keep in mind when investing in property through super. Once you retire, do you plan to keep your investment property or sell it? How will keeping it affect your cash flow? What will happen if rental prices change or the property is destroyed? These are good questions to discuss with a financial expert.

When developing your plan, consider expenses like fees, maintenance costs, insurance, stamp duty, legal fees, and the upfront costs for setting up your super. Also keep in mind that you can’t access your SMSF contributions until retirement age, so if you’re redirecting your employer super contributions to your SMSF, that fact needs to be worked into your strategy.

Do You Need to Enlist Professional Services?

No matter what property you’re buying, financial professionals are an essential resource. Legal stipulations can make purchasing investment property through your SMSF a complicated process, and financial experts can clarify any confusion and help you stay within the regulations.

Taking wrong turns in this process can be very costly and time-consuming, and the team at Wealth Hub Australia can give you comprehensive assistance. You can be confident at every stage and trust that we will guide you to your best result.

These are the types of professionals who can help you along the way. Make sure you choose them wisely.

• A financial planner will help you understand how to set up an SMSF and what the implications are based on your current financial situation. They can be on ongoing resource for you, even after you’ve closed on your investment property.
• The mortgage broker will work with you to borrow funds to purchase the property. They will determine your borrowing capacity and help you apply for financing.
• A real estate agent will help you navigate the regulations surrounding an SMSF. Be sure to check their reviews online and ask them directly about their experience with SMSF properties.
• A solicitor or conveyancer that specialises in property investment through a SMSF can apply their knowledge of property contracts to check for restrictions that may affect your investment.

Ask Your Advisors These Questions

If you enlist the help of financial professionals, preparing a list of questions can be a great way to ensure you’re starting a beneficial relationship. When meeting with any of the professionals listed above for the first time, ask them:

1. Are you qualified and accredited?

While it may seem these could be assumed, don’t assume anything. Find out what you can about their training and licensing, and if they can legally advise you on the subject you’re there to meet with them on.

2. Where will you invest my assets?

You want your portfolio to include stocks and other securities in addition to your investment properties. This helps protect you against risk and maximise your returns.

3. What are your fees and payment structure?

It’s important to know up front if your advisor takes a percentage from your assets they manage, or if they have a flat or hourly rate.

4. Can you show me a breakdown of all fees?

Understand all the fees you will be liable for over time. You need to know exactly what costs to expect from the beginning.

5. How do you approach investments?

Make sure you can trust their judgment when the market has its ups and downs. Be sure you see eye to eye when it comes to risk so you can build a portfolio that reflects what you want for your future.

6. How will we communicate?

How often will you talk to your advisor? Will they give you regular updates, and will these be over phone, email, etc.? Can you easily reach them between updates?

7. Are you a fiduciary?

Advisors may have ulterior motives in their recommendations—they may stand to gain certain commissions or benefits that will tempt them to act in their own best interests instead of yours. But a fiduciary is legally bound to act in your best interests at all times.

8. Do you use an independent brokerage firm?

Only work with an advisor or broker if they use an independent firm. Also called custodians, these firms keep your money safe by making sure it’s kept in accounts that are independent from your advisor.

You Buy Property with Super—What Happens Next?

From the moment you close on your investment property through your super, it’s essential that you keep up with taxes and fees and audit your investment every year to be sure you’re meeting the stipulations of an SMSF. Additionally, you will need to hire a third-party service to manage your property, tenants, rent, and inspections. Also, check in with your advisors to monitor the growth of your investment.

Wealth Hub Australia can streamline every stage of the process and guide you through meeting these obligations, so you can avoid the headaches of legal compliance and focus on your future.

Get Started Buying Property with Super Today

Our team at Wealth Hub Australia is dedicated to helping you build wealth, retire successfully, and enjoy the future you’ve worked for. We will walk you through the legal complexities of purchasing an investment property through your self-managed super fund so you can grow your wealth and achieve the life you want.

We help everyday Australians reach financial independence and retire well. Investing in real estate will help you grow your wealth and set you up for a comfortable and financially secure retirement. Contact Wealth Hub Australia today so our team can help you get started.

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