The long-term economic crises that have eaten away at people’s savings have made real estate seem much more valuable than before as a tool for planning for a comfortable retirement. As a matter of fact, an increasing number of people are investing in property through their superannuation funds. It hasn’t always been easy to invest in property using accumulated superannuation money since the costs associated were very high.
However, there have been many changes in laws that simplify how to buy the property with super funds. Most people prefer to use an SMSF (self-managed super fund) to invest in property and plan for their retirement years since this method allows them a simple way to
• Save on income tax
• Eliminate paying capital gains tax in the case of an investment property
Many small business owners also use this investment method to get the maximum benefit from owning property. They use their superannuation fund to buy commercial property to run their business and then rent the property to the business, thereby reducing their operating costs. However, it is important to keep in mind that the rental rates should be in keeping with existing rates in the market at that time.
An important point to note: When a residential property is purchased with an SMSF, the trustees or any other fund member is not permitted to live in the property. This also applies to properties that have been purchased as holiday homes. There are strict penalties for this. Since the rules concerning superannuation now allow people to borrow funds inside of an SMSF, increasing numbers of people buy property using this route. Keep in mind the following information regarding SMSFs:
It is possible to buy residential and commercial properties using an SMSF and industrial properties. One can also buy either listed or unlisted property using this route.
– This is a good way to buy property without having to deplete one’s bank account or reduce ones disposable income. Banks are generally willing to put up 80% of the value of a residential property. When it comes to commercial property, they will lend a maximum of 70%. The money will be borrowed via a Bare Trust that will keep the property’s legal title. Even so, the beneficial ownership of the property in question lies with the SMSF. This means that any profits such as capital gains and rental income will accrue to the SMSF.
– The potential benefits of investing through this route are very high, but the risks are also very great since the lender can take control of the property if the SMSF is unable to pay back the loan for any reason. Therefore, it is imperative to take measures to protect the investment. For instance, the buyer should take out an insurance policy to be able to avoid forcible sale of the property.
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– The members and trustees of the SMSF are the same. In other words, the members are expected to run the fund to their own advantage.
– Many laws govern the running of these funds, and compliance with them is essential as per the law.
– Certain concessions in stamp duty are available to those people buying property using this route. However, the exact amount of concession varies according to the state in which the fund is formed. It is necessary to study this factor before making a final decision on investing in property.
Even though many people are eager to buy investment property in superannuation, they do not realize until later on that the costs of making mistakes can be quite severe. Also, the many regulations and rules that govern these transactions can be quite confusing. Therefore, it is always good to get professional help, especially when buying overseas property in superannuation because of the additional risk factors. If you wish to find out how to buy a property with super funds, then the following information will be of great use to you: