Rise High Investor Weekly Video #49 – Using your super to buy property



Using Superannuation to Buy Property: What You Need to Know

Using your superannuation to invest in property has its perks, especially as you approach retirement age. Here’s why it’s so appealing:

  • Tax Benefits: Once you reach retirement age, the tax benefits can be significant, potentially reducing the tax burden on your investment income.
  • Direct Ownership: Owning property within your super fund gives you the satisfaction of having a tangible, real-world asset that you control and can physically see.

Key Downsides to Consider

While the benefits are enticing, there are also some notable downsides to using your superannuation to buy property. It’s essential to understand these before proceeding:

  1. Limited Value-Adding Opportunities: If you purchase a property using a loan within your super fund, you’re not allowed to make structural changes that would add significant value to the property.
  2. Equity Growth Restrictions: Unlike properties outside of super, you can’t access the equity growth of a property within your super fund to fund future investments. The amount you borrow at the time of purchase is the maximum loan you’ll have, regardless of the property’s value increasing over time.
  3. Complex and Costly Financing: Financing property through super is more complex, takes longer, and tends to come with higher interest rates and fees compared to standard property investment loans.
  4. Strict Compliance Requirements: Superannuation is a highly regulated area. Missteps in setting up or managing your self-managed super fund (SMSF) can result in severe penalties, so ongoing compliance is critical.

How to Approach Property Investment with Super

If you’re considering using your superannuation to buy property, here’s how to set yourself up for success:

  • Get Professional Advice: Speak with your accountant and financial planner to ensure you understand the setup, compliance requirements, and tax implications. Their expertise is invaluable in navigating this complex area.
  • Choose the Right Property: Work with a trusted advisor to identify a property that aligns with your financial goals and offers the best potential returns within the constraints of your SMSF.
  • Plan for the Long Term: Be aware that superannuation property investments are a long-term strategy. Make sure it fits within your broader retirement planning goals.

Is It the Right Choice for You?

Using your superannuation to buy property can be a great way to diversify your retirement assets and enjoy the benefits of property ownership. However, it’s not without its challenges. By understanding the restrictions, costs, and compliance requirements, you can make an informed decision about whether it’s the right move for you.