The average person works for many years, going through the daily grind so that they 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 labor. However, many people consider investing in foreign countries to maximize their returns.
As a result, people are becoming interested in buying property with super funds, both overseas and within the country. Stock markets are no longer attractive places to invest money because of extreme fluctuations. There are so many advantages to parking investment property in superannuation funds that many people rush into it without considering all the facts.
Buying a property with super funds, whether within the country or abroad, can be quite complicated, especially since many rules and regulations exist. 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 digging deep into their savings.
After all, who wouldn’t want to buy an investment property overseas without reducing his or her disposable income? Another advantage of this route is that one’s borrowing capacity will not be affected. Further, the income from this investment will be free of income tax once the trustees reach 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. Therefore, it is 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, ensuring 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. The rules governing how super funds and SMSFs can invest abroad must be followed carefully 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:
– Ownership by a super fund is recognized by the country where 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 must 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 to commercial properties.
– The investment in property or anything else is managed efficiently to maximize members’ retirement benefits.
– Any costs associated with managing the investment should be kept to the absolute minimum and appear reasonable. Be prepared to have these expenses scrutinized during an annual audit. 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 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 insurance and taxes are important points to be noted. The good news is that property-related expenses such as repairs, insurance, taxes, and even depreciation are tax-deductible.
Buying Commercial Properties Overseas
Many people prefer to focus on commercial and not residential properties when considering 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. Investors look at investors look at various commercial properties: shopping, supermarkets, and the like. However, these commercial investments do have a few drawbacks as well.
