If you are one of the millions of people who contribute to a pension plan or super fund, have you considered the idea of using your hard-earned contributions to buy an investment property? It makes sound financial sense to put your hard-earned savings to work before retirement, helping to minimize the chances of you outliving your wealth.
Using an SMSF Loan to Purchase Investment Property
Many companies are offering SMSF loans to help you get started in your investment. Part of the broader ‘superannuation’ industry, self-managed super is the largest sector of the superannuation industry, predominantly due to the ability to invest in different assets, such as:
- Residential property
- Commercial property
- Industrial property
- Retail property
Changes in SMSF Loans – Use Your Contributions to Borrow
In the past, a self-managed super fund usually only allowed you to purchase a property with the money that was already saved up from employer contributions. This meant that for many people, their contributions were not significant enough to pay for the entire market price of an investment property. This was a problem as it restricted the number of investment opportunities available.
These days, however, an SMSF can itself borrow money, opening up a much wider investment opportunity for many people.
The contributions you have saved up in your super fund are what is used to secure the loan to buy the property you are interested in. The super fund itself is the name under which the property is purchased.
When you apply for a loan with your SMSF, there are a few important things to bear in mind:
- The deposit for the SMSF loan must come from the fund itself.
- All monthly loan repayments must come from the actual super fund.
A vital characteristic of a self-managed super fund is that the property is purchased in the name of the super fund, using the fund contributions. Once you have purchased the property and have begun renting it out, all the money from the rental fo the property gets paid back into the superfund.
There are some essential restrictions to bear in mind when investing with your super fund, one of which is that if you buy a property with your super fund contributions, you are rarely allowed to spend any time in that property due to tax regulations.
If you are looking into setting up a self-managed super fund, you should always get sound advice from a qualified financial planner.