How to use superannuation to buy property in Australia

Superannuation in Australia is designed to assist Australians build wealth for retirement however, under certain circumstances, it can also be used to invest in property. This is done via the assistance of an accountant or financial planer in setting up a self managed super fund (SMSF). A self-managed super fund allows you to take control of your super and choose where your retirement savings are invested.

Building a property portfolio through superannuation

To purchase property with your super, you must set up a SMSF. The fund can then buy residential or commercial property, provided the investment complies with the relevant superannuation laws. The property must:

·     Be solely for investment purposes

·     Not be lived in or rented by you, your family orrelated parties (if residential)

·     Be managed in the best interests of fundmembers’ retirement savings.

Residential vs commercial property

·     Residential property: Must be an arm’s length investment. This means you are not able to use the property personally or leaseit to a relative.

·     Commercial property: An SMSF can purchase acommercial property and least it to a related business at market rates, whichis a common strategy for small business owners.

Borrowing within an SMSF

It is possible to borrow money within a SMSF to buy property through a structure called a limited recourse borrowing arrangement (LRBA).However, the rules are very strict and borrowing costs can be higher than a standard home loan.

Benefits and risks

The key benefits include diversifying your super, potential tax advantages and the ability for business owners to own their premises through super. The risks include high set up and running costs, strictc ompliance requirements and limited access to your funds until retirement.

Final thoughts

Using superannuation to buy property can be a powerful wealth-building strategy, but it’s not suitable for everyone. Always seek financial advice to ensure it fits your long-term retirement goals and complieswith all relevant superannuation laws.

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