Property in Super: Tips and Traps for First Time Investors

t is a complex process to purchase property inside superannuation and without the help of a specialist, it is easy to make costly mistakes and dive into investment strategies which are not completely understood by the members of the fund. Not only does an investor need to understand the property market and make sound investment decisions, they also need to have the time and knowledge to manage their superannuation and be aware of the rules around what can and can’t be done inside superannuation.

The following tips will get you on the right track:

1. Understand superannuation rules

Superannuation is a complex structure. Prior to establishing an SMSF, it is important to understand how superannuation can be used, the limitations of investing inside superannuation and how this differs from investing personally. Superannuation is a tax-effective investment vehicle when the rules are well understood. Poor decisions, and not understanding the obligations required of a trustee of an SMSF can lead to fines, penalties, and excess tax being paid.

2. Understand your borrowing power

Most lenders require a deposit of at least 30% to borrow inside superannuation, and some will also ask that there be a certain level of cash left over after the purchase. A lender will also consider the contributions being made to superannuation, and the expected rental income, to ensure the investor can service the loan. As an investor, it is vital to understand the banks lending criteria prior to establishing a self-managed superannuation fund (SMSF) or it could end up being a costly exercise.

3. Implement an investment strategy

Setting investment goals at the beginning of the process will help ensure that your investment is going to meet your needs over the long term. Things to consider here is whether you are chasing income or capital growth, how you intend on repaying the loan on the property and over what time frame, and is this investment going to meet the retirement objectives of all members of the fund.

4. Outsource to professionals

The best place to start is getting advice from a specialist SMSF Financial Adviser. They are going to be able to ensure the strategy is appropriate for all members of the fund and their objectives. This process will involve completing financial projections to model out the expected outcome and formulate strategies to ensure the debt gets repaid, and retirement goals will be met. A specialist SMSF Financial Adviser will assist you in establishing the fund, understanding the rules, and will work closely with your mortgage broker and solicitor to ensure finance gets approved and the property purchase settles without delay and penalties.

If you'd like to know more - feel free to contact us directly on 0423 313 486.