Avoid These Traps When Buying Property with Your Self Managed Super Fund

  • Posted 16 Jan

Avoid These Traps When Buying Property with Your Self Managed Super Fund

If you’re an investor, have you thought about buying investment properties by setting up a Self Managed Super Funds (SMSF)? Accessing your super to purchase properties might seem like a good idea, however Australian statistics show that it’s still a minority of investors who actually go ahead and pull the trigger to purchase in this way.


The attraction is pretty understandable for those that do:

  • They want to invest in a property
  • They like the idea of having no capital gains tax when it comes time to sell
  • They like the idea of having reduced or no income tax on rental income generated from this investment property
  • They like the idea of owning a business premises.

There are some pitfalls that you’re going to need to be on the lookout for if this is an option you’re looking at.

1. Is SMSF the best option for you and your situation?

Certainly, the tax savings on the capital gains and the rental income are significant, but the negative gearing benefits may also be less as well.

Also, when you have money locked away in the SMSF, its locked away for a long time, generally until you’re 60 and nearing retirement. There is no option to access this any earlier, so something to consider if you’re looking at this as an option.

2. Its complicated

When you open a SMSF, you are taking on a very high degree of responsibility. Property investing will add a whole other layer of complexity to this already tricky setup.

This means that you will need the services of paid professionals to provide the necessary guidance along the way. Keeping track of who is responsible for what, and when, can become a bit of a nightmare.

3. Its costly

Running an SMSF can cost upwards of $2,000 a year. This is on top of the usual costs of buying and selling property, costs like stamp duty, real estate agent fees and conveyancing costs.

When you add your property to the fund, there will also be additional accounting fees. Now if you add a loan to this, you’ll have more costs of setting up and managing the loan, and the additional trust you will have to set up to hold the property.  Since such costs are so high, this way to invest in property is really for those that have at least $200,000 in their SMSF.

4. Legal restrictions

If you don’t stick to the rules, you can face severe penalties. These might include:

  • Not being able to transfer a residential property you own into your SMSF
  • Not being able to live in the property.  (Your friends and family won’t be able to either.)

Buying property through your SMSF can be a great way to grow your retirement savings, but you’re going to need to spend some time really thinking about whether this strategy is for you.

Take the time to find out of the property is the right investment for your SMSF. Don’t rush into this financing option, because if you do, you may find yourself in trouble later on.

Call us today to chat about your options and whether using your SMSF is the right way to your hands on an investment property.

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