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Buying an Investment Property in a Self Managed Super Fund

Buying an Investment Property in a Self Managed Super Fund

Buying an Investment Property in a Self Managed Super Fund

Purchasing a property in a Self Managed Super Fund (SMSF) is increasingly getting popular mainly because of the potential tax benefits and extra control it offers over your assets.

SMSFs are the largest sector in the Australian superannuation industry and the trend continues with around 32,000 new SMSFs set up every year. The fact that the fund now allows you to borrow money to purchase assets such as property has arguably been the best tax incentive for property investing since negative gearing tax perks.

However, to acquire the property through your SMSF is a decision that you need to give careful consideration and Financial Advice from a qualified expert. Here’s our guide on how you can join the growing ranks of SMSF property investors already taking advantage of this innovative SMSF tax structure.

Buying an Investment Property in a Self Managed Super

Do it yourself

SMSF is suitable for those people who have lots of super with extensive skills to understand finance and legal matters. And, to do so, first of all, it is important for you to understand your legal responsibilities and investments you plan to make, because at the end of the day you are still the one responsible for planning your strategies. And, those who don’t have much knowledge in managing their funds, it is better to seek professional advice from experts.

How to buy an investment property with SMSF?

Ideally, you need a minimum of $200,000 in existing super savings for an SMSF to be a cost-effective option. That’s because on amounts under $200,000, the fees on a typical retail, industry or corporate super fund are generally cheaper. Banks will allow you to borrow approx. 70-80% of the property value, however it is more desirable to have at least a 50 percent deposit so the property is positively geared or close to it.

Tax-deductible personal super contributions, salary sacrifice contributions, and compulsory super guarantee payments made into your SMSF, as well as any rent your fund receives on the property, can all be used by your SMSF to help cover the loan repayments.

If you use your SMSF to buy property, what sort of property should it be?

It’s important to note that you can’t use your SMSF fund to invest in a property that you intend to to live in, or for any family member to live in. There’s a condition that the SMSF trustee, its members, or any relatives can’t benefit from the property. The property purchase must be for the sole purpose of supporting the SMSFs investment strategy in building wealth for retirement.

Is it worthwhile setting up an SMSF to purchase property?

If you have decided on investing in property through your SMSF, make sure you know what you could be in for. Statistics show that a self managed super fund can often outperform the returns offered by retail and industry funds. Seeking professional advice will give you the confidence to invest your money in a right way.

Advantages of buying a property with SMSF

There are significant advantages of having a property in an SMSF, including your tax, which will be considerably lower than most individual’s personal tax rates. If the property is sold during the accumulation phase, the capital gains tax is calculated at a discounted rate. If the asset is sold while the super fund is in pension phase, it’s tax free.

For example, if a person in their 50s invests in a property outside the super, and then sells it 15 years later to fund their retirement, they would have to pay an extravagant sum as capital gains tax! However, if the exact same property was bought through an SMSF fund, the tax would be zero after the super switches to pension phase.

By holding property in your super, rental income is only taxed at 15%, or if structured properly, it could even not be taxed at all during the pension phase. For those who instead like to turn over their assets, borrow freely against it or develop real estate, super may not be the ideal finance solution for you.

So, what you should do with this information?

Whether you should buy a property with your SMSF ultimately comes down to making a rational investment decision based on facts and predicted trends from investment experts. For example, if the property is in an attractive area for renters, and is projected to appreciate in value overtime, and if you have a strategy in place to leverage your investment fully, then it may be an investment opportunity that you want to seriously consider.


If you are considering buying a property through an SMSF, talk to one of our experts at Property Asset Planning on 8338 7206


Read our previous article outlining some key considerations of SMSF’s


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