This week, we’re diving into a topic that can be a game-changer for your investment strategy: property investment within a self managed super fund (SMSF).
But first, a quick disclaimer: I’m not a financial planner, so before you make any decisions regarding property in your SMSF, always consult a qualified financial advisor.
Having worked with numerous clients who’ve ventured into real estate within their SMSFs, I’ve picked up on some key differences and essential tips that can help you make informed decisions. So, let’s dive right in:
Tip #1: Single Contract Requirement
When considering property for your SMSF, it’s crucial to know that it must be a single contract purchase.
Unlike conventional property investments where you can engage in two-part contracts, SMSF properties must be built or finished.
Tip #2: Positive Cash Flow
Ideally, your SMSF property should be positively geared, meaning it generates more income than the expenses.
While SMSFs offer protection and security, you don’t want your investment to be a financial drain on your super fund.
Tip #3: No Development Activities
Unlike regular property investment, you generally can’t engage in development activities within your SMSF.
This means no buying land and adding dwellings or construction. Stick to more traditional property types.
Tip #4: Larger Deposit
Banks typically lend a lower Loan-to-Value Ratio (LVR) for SMSF property investments, often around 60-70%.
This means you’ll need a larger deposit. Additionally, there are rules governing the minimum amounts required in your super fund before you can invest in real estate, compared to the loan value.
Tip #5: Higher Interest Rates
Be prepared for higher interest rates when borrowing money for property within your super fund compared to outside of it. This is a factor to consider in your financial planning.
While SMSF property investments can be an excellent way to build your property portfolio, they come with their unique set of rules and considerations.
I highly recommend opting for modern, low-maintenance properties within your SMSF to ensure they don’t become a burden on your resources.
If you’re looking for a top-notch financial planner to guide you through this process and help you make the most of your SMSF property investments, please reach out to me, and I can introduce you to a successful financial planner who has assisted many clients over the years.
Remember, informed decisions are key when it comes to SMSF property investments. If you have any questions or need further guidance, don’t hesitate to get in touch. You can book a call in my calendar by clicking here.
Best Regards,
Geoff Tomkins
Buyers Advocate
PH: 0404 852 781
