There are several super investment options available, but more individuals are looking to take control of theirs by opening a self-managed super fund (SMSF). With it, you could decide where and when you’ll invest your super. You could invest in shares or go for real estate, for instance.
The Basics of Using Self-Managed Super Funds for Investing in Property
Although you’re not allowed to access your SMSF to purchase a property that you could live in, you could use it for buying investment properties. An SMSF is a fund that could have one to four members or trustees who could collectively make decisions on where they invest their super.
To use your SMSF for purchasing an investment property, you don’t need to save up for the property’s full value. Instead, you utilise your SMSF as leverage for securing a loan to purchase an investment property, as explained by property strategists from property development and management companies in Australia.
For example, if your super had a balance of $350,000, you could have $350,000 of BHP shares or managed fund, or use the $250,000 of your $350,000 as deposit and then borrow $250,000 to purchase a $500,000 property. This would give you both gearing and leverage.
However, there are stringent regulations for using SMSF for purchasing an investment property. The most crucial is that you can’t use your entire SMSF for buying property. Lenders and banks are likewise more careful when lending, so you could expect a lower-than-usual loan-to-value or LTV ratio. You would also have to keep a portion of your SMSF as a liquidity buffer made up of shares and cash that’s worth at least 10% of the value of your proposed investment.
Establishing an SMSF comes with specific rules and processes, and if you’re not entirely sure how to go about it and what your responsibilities are as an SMSF owner, getting professional help is your best recourse. You and other trustees (if applicable) would also need to create a detailed investment strategy that specifically outlines your financial plan based on each trustee’s future and current needs.