Buying an Investment Property In Your SMSF - Important Things to Consider

Buying an Investment Property In Your SMSF - Important Things to Consider

So what are the most important things to consider when buying an investment property withing your SMSF?

Ask yourself the following questions :
1. Does it make good commercial sense?
2. Does the property investment fit in with the investment strategy of my fund?
3. What's its growth potential?
4. Are there any tax benefits?

For an investment property to be commercially viable, the superannuation fund must derive sufficient rent and members contributions to cover the monthly loan repayments and property costs such as water and council rates, body corporate fees, property repairs and property management fees etc. Hence, the greater the rent and the lower the borrowings and property costs, the more viable the investment is likely to be.

Another critical factor when purchasing an investment property with your superannuation is how long you intend to hold on to the property. For example, if you are a 50 year old who plans to buy the property and pay it off in the most tax effective manner and live off the rent in retirement, this is definitely a strategy to consider.

If on the other hand you are a 30 year old looking at a block of land to sell in five years time with the view to buying a bigger home, this is not the best option, as in five years time you will not be able to take the capital growth out of your superannuation fund to buy a home.

If you prefer direct property investment other than shares, managed funds or property trusts, you should consider this strategy for your superannuation as a result of the favourable law changes to the SIS Act in 2007.

Whilst rental return is very important, so too is future capital growth - you invest to make money and it makes sense to make decisions that will mean you make the most money with the minimum effort. The properties you buy should have the potential to double in value every 7 to 10 years.

There are generous tax benefits associated with buying an investment property through a fund. Super funds pay only 15% tax on rental income and 0% when the fund is paying a pension to members over the age of 60. Properties in super funds also don't attract capital gains tax when retirees over 60 sell the assets. Tax deductions can be achieved through salary sacrificing.

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