Purchasing property inside super SMSF – how this could build up your retirement savings using the power of leverage
Are you looking for ways to grow your retirement savings and secure your financial future? One option to consider is purchasing property inside a self-managed super fund (SMSF). By leveraging the power of debt, you can potentially grow your wealth and build a more robust retirement portfolio. It is possible to purchase investment property through your superannuation fund for both residential property and commercial property which could present substantial retirement benefits and cash flow. It is important to note that any investment decision or financial advice should be supported by an investment strategy, with support from a professional team including mortgage brokers, financial advisers and accountants.
SMSF property structure
Borrowing to buy property through an SMSF is achieved through a limited recourse borrowing arrangement (LRBA). You are not allowed to make significant changes to the original asset that was purchased using the limited recourse borrowing arrangement. Renovations that substantially change the asset will require a new limited recourse borrowing arrangement. The concept of ‘a single acquirable asset’ is very important when dealing with a limited recourse borrowing arrangement (LRBA).
Here are some key points to consider when looking at purchasing property inside your SMSF:
1. Leverage
One of the main advantages of using your SMSF to purchase property is the ability to leverage your investment. By taking out a loan to finance the purchase, you can potentially increase your returns and grow your wealth more quickly than if you were using cash alone. This can be a powerful tool for building a solid retirement nest egg.
2. Diversification
Adding property to your SMSF can help diversify your investment portfolio and reduce risk. Property tends to have a low correlation with other asset classes, such as stocks and bonds, meaning that it can provide a hedge against market volatility. By spreading your investments across different asset classes, you can potentially reduce the overall risk in your portfolio.
3. Tax benefits
Investing in property through your SMSF can also offer tax advantages. Rental income generated by the property is taxed at a concessional rate of 15%, and any capital gains made on the property are taxed at a discounted rate if held for more than 12 months. Additionally, any expenses related to the property, such as maintenance costs or loan interest, can be claimed as tax deductions within your SMSF.
4. Retirement income
Purchasing property inside your SMSF can provide a source of passive income in retirement. Once you reach retirement age, you can choose to rent out the property and use the rental income to supplement your retirement savings. This can provide a steady stream of income to help support your lifestyle throughout your retirement years.
5. Professional advice
When considering purchasing property inside your SMSF, it’s important to seek professional advice from a financial planner or accountant who is experienced in SMSF strategies. They can help you navigate the complex regulations and rules surrounding SMSFs and ensure that you are making informed decisions that align with your financial goals.
There are strict rules around SMSF loans, SMSF funds, and the purchase or business premises or commercial premises via direct property. Making the wrong decision could have a substantial tax implications and impact on taxable income, pension phase, concessional tax rates and potential tax benefits. Any decisions should go through professionals including a financial adviser, mortgage broker and accountant.
In conclusion, purchasing property inside your SMSF can be a smart way to build up your retirement savings using the power of leverage. By leveraging debt, diversifying your portfolio, and taking advantage of tax benefits, you can potentially grow your wealth and secure a more comfortable retirement. Just be sure to seek professional advice and carefully consider your investment strategy before making any decisions.
