What it takes to buy a property with your super fund

With real estate values recalibrating after two years of double-digit growth, now may offer an opportunity to purchase property using your superannuation fund.

You’ll need to have a Self-Managed Super Fund (SMSF), which allows you to make your own investment choices. If you’re in an industry-based super fund or similar, this is not viable.

If you are interested in exploring this option, it is essential to talk to your financial adviser. Be aware that a self-managed fund requires a hands-on approach, and you’ll need to be mindful of the various super and tax laws.

For example, you’ll be restricted to buying only an investment property with your super. One exception is designed to help first-home buyers. They can use their super account to save under the First Home Super Saver Scheme with pre-tax contributions.

However, if you do have a self-managed fund, these are some basic steps you can take to buy a property with your super. 

Again, discuss your plans with a financial adviser before going ahead with a purchase, asking them to outline the benefits and responsibilities of being a property investor.

Buying options

You can invest in a residential or commercial property, such as a warehouse or office/retail space. The ATO has a strict interpretation of what qualifies and what doesn’t. 

Super purpose

To qualify, your fund cannot be used for any other purpose besides providing retirement benefits. Heavy penalties apply if you don’t play by the rules.

Talk to experts

You can take a loan to supplement super for a purchase. Talk to a lending officer or mortgage broker about your options. A typical path is a Limited Recourse Borrowing Arrangement (LRBA), which protects the fund in the event of a default.

Admin costs

While many set-up expenses are one-off, you need to be ready for all the fees that come with establishing an SMSF, a loan, and the stamp duty, taxes and legal costs associated with a property purchase.

Cash flow

You super should have sufficient cash flow to cover your costs, such as loan repayments, insurance, rates and maintenance expenses.

Trust question

The title papers of your purchase will be held in a so-called Bare Trust, also known as a holding trust. The title reverts to your super fund only when the loan has been paid in full.

NOTE: The information in this article is general in nature and provided as a general overview  only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.