Using Your Superannuation for Property Investment in Perth
Investing in real estate has long been considered a prudent path toward financial security and potential capital growth. For many people in Perth and across Australia, their superannuation is their most substantial asset, prompting them to contemplate the possibility of channelling it into property investment. The idea of using your superannuation to purchase an investment property in Perth can indeed offer a compelling strategy to diversify your investment portfolio. However, before deciding to embark on this journey, there are multiple considerations you need to be aware of.
This article endeavours to offer an insightful overview of leveraging your super for property investment in Perth. It is our aim to equip you with the knowledge needed to make a well-informed decision that will help you reach your financial goals.
What Can I Buy with My Superannuation?
Purchasing an investment property in Perth through your superannuation requires the establishment of a Self-Managed Super Fund (SMSF). This type of fund will provide you with more control over your investments but, be aware that it also involves administrative and compliance responsibilities that differ from traditional superannuation funds.
Within the realm of your SMSF, you can purchase both commercial and residential investment properties however these must be located within Australia. Furthermore, there are no restrictions on the amount of your total SMSF holdings that property can constitute, nor are there caps on property values when you make your purchase.
The Advantages of Super-Powered Property Investment
The appeal for using your superannuation for property investment in Perth extends beyond mere diversification. It also encompasses a range of enticing benefits, ranging from tax advantages to the potential growth of your retirement income. Regardless of this however, it is crucial to understand that these advantages depend on the uniqueness of your individual circumstances which is why you should consult a qualified financial advisor before embarking on this journey.
Among the standout perks is the Capital Gains Tax (CGT) discount, which, in the realm of real estate procured through an SMSF, is capped at a favourable 10 percent. Furthermore, if you opt for a loan to finance your investment property, you can avail yourself of a tax deduction for the interest accrued on the borrowed funds.
Moreover, delving into Perth property investment via your superannuation opens doors to expedited loan repayment through a combination of rental income and your superannuation contributions. This can then pave the way for portfolio growth, with the equity accrued in your property serving as a steppingstone toward acquiring additional assets. And of course, if your property is not mortgaged, the income it generates can be used as an additional source to fund your retirement.
Acquiring Financing for the Property Purchased via Your Self-Managed Superannuation Fund
Obtaining a loan for the investment property you wish to purchase through your SMSF involves a Limited Recourse Borrowing Arrangement (LBRA). Within this framework, the SMSF Trustee is responsible for securing the loan and then uses it to procure property within the SMSF. The term “limited recourse” underscores that, in the event of default, the lender can only tap into assets held within the Trust to settle the debt. An advantage of this arrangement is that it provides an additional layer of asset protection for the property owner.
Whilst this may sound appealing and offers a degree of control and choice over the structure of your investment portfolio, undertaking property investment in Perth through your SMSF is complex and involves several administrative and compliance obligations that should be thoroughly investigated and understood. Furthermore, there is a risk that property may unduly dominate your investment portfolio.
In conclusion, this article provides basic information only and is no substitute for financial or legal counsel. Undertaking a SMSF is a big responsibility and requires a full understanding of the details and what is involved. For this reason and as mentioned previously, it is essential that you seek advice from a trusted financial or legal advisor before deciding on whether a SMSF is for you, after all, your financial future deserves nothing less than a well-informed, thoughtful approach.
