Investing in bricks and mortar

Want to own an investment property? It is becoming increasingly popular to
purchase an investment property using your super

Owning a physical asset such as a property may give you more peace of mind for your super. That’s not to say that this type of investment is risk free, however having a SMSF gives you freedom to invest in property.

Many of our clients have used their SMSF to purchase an investment property, either buying it outright, or through a borrowing arrangement.

Having a tangible asset not only accrues in value, but it also provides a positive cash flow stream for your SMSF now and through to retirement. This is one of the main reasons many people prefer to use their SMSF to buy an investment property.

There are some great tax advantages to investing in property with an SMSF. Your investment income is taxed at 15%, so your SMSF is able to keep more of the income compared to if you have an investment property as an individual. Capital Gains is instead of if  Tax if only 10% after 12 months of ownership, and 0% when you hit your preservation age.

Self-managed superfunds are allowed to borrow funds to purchase investment properties. If a SMSF has enough funds for a deposit (& associated costs) the remainder of the purchase can be borrowed. This lending agreement is known as a Limited Recourse Borrowing Arrangement (LRBA). This means, in the event of a default, the lender only has recourse on the property and can never claim against any other assets held in the SMSF. Much like normal lending, the lenders will only loan up to 80% of the value of the property.

To borrow via this method, a Bare Trust must be established, as well as a Bare Trustee company. The investment property is then owned by the Bare Trust, with the SMSF having a beneficial entitlement to it. The Bare Trust is essentially holding the title until the loan is paid off. After the loan is repaid, the SMSF has the right, but not the obligation, to acquire the legal ownership of the investment property.

The loan application process for a SMSF is not like a typical loan and can be quite complicated. For this reason, we provide an in-house loan service to assist with loan applications to a number of lenders that offer LRBA loans.