How The Pros Use Self Managed Super Fund (SMSF) To Invest In Property

Summary

This video discusses the benefits of purchasing property through a Self-Managed Super Fund (SMSF), highlighting the growing trend in Australia. It explains how leveraging superannuation can maximize investment returns compared to traditional methods. Viewers learn about essential strategies, the importance of building a knowledgeable team, and navigating SMSF lending, particularly in light of recent banking changes. The video also covers regulations, such as the sole purpose test, and differentiates between residential and commercial property investments, emphasizing the potential for capital growth while maintaining compliance with Australian tax laws.

Takeaways

• 😀 SMSFs (Self-Managed Super Funds) have gained popularity, with over 610,000 established and 1.1 million members in Australia.
• 💼 Investing in property through SMSFs can provide substantial capital growth by leveraging superannuation funds for high-value asset purchases.
• 📊 A $250,000 investment in superannuation can potentially yield higher returns through property investment compared to traditional superannuation investments.
• 👥 Building a team of professionals, including a mortgage broker, accountant, and financial planner, is essential for successful SMSF property investment.
• 🏦 Since 2018, major banks have largely exited SMSF lending, making it crucial to find an experienced broker for SMSF loans.
• 🔒 SMSF loans are governed by Limited Recourse Borrowing Arrangements (LRBAs), which have specific rules prohibiting the use of SMSF assets as collateral for other investments.
• 💰 Managing equity can be tricky; using offset accounts can help manage high interest on SMSF loans while generating usable cash.
• 📜 All SMSF activities must adhere to the sole purpose test, ensuring that properties are solely for investment and not personal use.
• 🔧 Significant renovations on SMSF properties are generally prohibited, although minor cosmetic updates may be permitted with professional advice.
• 🏢 Business owners can purchase commercial properties through SMSFs, allowing them to become their own landlords and benefit from rental income.

Q & A

What is a self-managed super fund (SMSF)?

An SMSF is a type of superannuation fund that allows individuals to manage their retirement savings and make investment decisions, including property investments, on their own.

Why has the interest in SMSF property investments increased?

Interest has grown due to the desire for property investment among Australians, with over 1.5 million households owning investment properties, and the potential for maximizing retirement savings through strategic property purchases.

How can leveraging superannuation benefit property investment?

Leveraging allows individuals to use their superannuation to purchase higher-value assets. For example, using $250,000 to buy a $1 million property can lead to significant capital gains compared to traditional superannuation returns.

What professionals should be included in the team for setting up an SMSF?

A successful SMSF setup requires a team including a mortgage broker, accountant, financial planner, lawyer, and possibly a buyers agent to help find the right property.

What challenges do SMSF loans present?

Since 2018, major banks have exited SMSF loans, making it essential to find experienced brokers. SMSF loans also come with unique rules and typically higher interest rates due to their complexity.

What is a Limited Recourse Borrowing Arrangement (LRBA)?

An LRBA is a type of loan specific to SMSFs that allows the fund to borrow money to purchase an asset, with the loan secured only against that asset, protecting other fund assets from risk.

What restrictions apply to properties purchased through an SMSF?

Properties must be used solely for investment purposes and cannot be used for personal enjoyment or rented out to family members, as all activities must be focused on providing retirement benefits.

Can business owners use SMSF to purchase commercial property?

Yes, business owners can purchase commercial properties through their SMSF, allowing them to become their own landlords and benefit from rental income while mitigating business risks.

What is the recommended minimum balance for an SMSF?

A general recommendation is a minimum balance of around $250,000, though some lenders may accept lower amounts based on individual circumstances such as contributions and rental returns.

What arguments do industry super funds make against SMSFs?

Some industry super funds argue that SMSFs are not always the best choice due to lower liquidity and returns; however, proponents emphasize the potential for significant capital growth through leveraged investments.