The average person puts in many years at work, going through the daily grind, just so that he or she can raise a family and then retire in relative comfort. Many people nurture the dream of settling down in a pleasant foreign destination where they can enjoy the fruits of their labors. However, many people are beginning to consider investing in foreign countries to maximize their returns.
As a result, growing interested in finding out how to buy a property with super funds, both overseas and within the country. Stock markets are no longer attractive places to invest money because of extreme fluctuations. As a matter of fact, there are so many advantages to parking investment property in superannuation funds that many people are rushing into it without considering all the facts.
The process of buying a property with super funds, whether within the country or abroad, can be quite a complicated one, especially since there are many rules and regulations concerning it. Even so, using a super fund or a self-managed super fund (SMSF) to buy property is generally a good idea because it enables people to plan for their golden years without having to dig deep into their savings.
After all, which person wouldn’t want to buy an investment property overseas without reducing his or her disposable income? Another advantage of using this route is that one’s personal borrowing capacity will not be affected. Further, the income from this investment will be free of income tax once the trustees cross 60 years of age.
The idea of buying property overseas is quite a popular one because of a few reasons:
– Some foreign destinations offer a relaxed atmosphere and pleasant climate all year-round, enabling people to enjoy an outstanding quality of life. It is therefore easy to find tenants in these places.
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– Back to back global crises have resulted in meager real estate prices in certain attractive destinations
– Some countries offer special packages to induce foreign citizens to invest in property there, thereby ensuring that the best possible deal is available.
– Some of the more popular destinations offer excellent rental returns of around 15% with a very high rate of occupancy, ensuring that the investment is extremely profitable
There are a few things to be considered when buying overseas property in superannuation funds. In fact, the rules that govern how super funds and SMSFs can invest abroad have to be followed very scrupulously since any deviations will attract penalties. Apart from this, many commercial aspects also have to be considered because the attraction of a seemingly sweet deal can make people act incautiously.
If you wish to buy the property with super funds, then you have to ensure that:
– The ownership by a super fund is recognized by the country you wish to buy property.
– You can demonstrate that the sole purpose of the investment is to provide retirement benefits for the fund members. The investment will have to comply with the Sole Purpose Test.
– You or any other member of the fund cannot live in the property in question under any circumstance
– The property in question has not been bought from anyone related to any of the trustees. However, please note that this rule does not apply in the case of commercial properties.
– The investment in property or anything else is managed efficiently to ensure that members’ retirement benefits are maximized.
– Any costs associated with managing the investment should be kept to the absolute minimum and should also appear to be reasonable. Be prepared to have these expenses scrutinized during an annual audit. As a matter of fact, it is best to check with one’s auditor before incurring any expense ostensibly in connection with managing the investment. The best example of this expense is travel to a foreign destination to inspect the property or sign up a tenant.
Since there are quite a few restrictions applicable to super fund loans to buy property, you need to be aware that the fund can pay for any renovations to the property, but it cannot borrow money. Also, loans are generally not available for building construction. It, therefore, stands to reason that you should only purchase a property after factoring in these costs. However, expenses such as An important point to be noted: The good news is that property-related expenses such as repairs, insurances, taxes, and even depreciation are tax-deductible.
Buying Commercial Properties Overseas
Many people prefer to focus on commercial and not residential properties when they consider buying overseas property in superannuation funds. Commercial properties are easier to manage and tend to have longer leases. These are critical factors when the property is overseas since you won’t have the resources to look after the investment. The various commercial properties that investors look at are shopping complexes, offices, supermarkets, and the like. However, these commercial investments do have a few drawbacks as well.