Use your SMSF to purchase property

Sometimes, I’m like a dog with a bone. Building your property investment portfolio with a strategy is one of those situations.  Ask my marketing team. They keep harping on at me to get on with stories about how to get rich through property.  Personally, I haven’t seen that happen with anyone who hasn’t started with a strategy.  Simply, because when it comes to building your property investment portfolio, you’ve got to have a solid strategy.  Figuring out your long term goals and devising a plan to get there. It sounds pretty straight forward, but it’s generally the stumbling block that leaves would-be investors with a small wad of cash in the bank and little idea what to do with it.

So, if you’re interested in wealth creation for retirement purposes (and seriously, who doesn’t dream of being a grey nomad, with no financial worries), then a part of your strategy could be to consider buying property through a Self Managed Super Fund – SMSF.  If you aren’t familiar with an SMSF, but you’re on a pretty good wicket, go talk to your financial planner. An SMSF has plenty of perks, but isn’t for everyone.  If it’s for you, building your real estate portfolio through an SMSF is a definite.

There are many ways to start the process of building your SMSF property portfolio. You begin with the question of:

How much do I need to live off in retirement, how far away is retirement, and will my current super fund investment plan provide that?.

If not you need a plan – a strategy about how to achieve the kind of financial security in retirement you want.

Property assets should be part of the mix, and like all investments should be diversified to limit exposure to risk. That’s why you should be thinking of a portfolio as opposed to just one property.

But how do you afford multiple properties?

Get a good Property Investment advisor on your side, they will help you strategize, explain the pros and cons of different strategies and guide you through the process of building a robust and self sustaining property portfolio. They will also help you conform to the written investment strategy for your SMSF.

Finance is a key component to any investment, and non recourse loans are the only way an SMSF can be financed. This means that if the loan defaults, other assets in the fund are not used as security to make up the losses. Whilst this can be good for the investor it does mean that the lending institutions have tighter guidelines and lending criteria to protect themselves.

The Sole Purpose Test. This means that you can only use your investment for the sole purpose of saving for retirement. This means you can’t buy your home or holiday property in the SMSF.

Avoid related party transactions, there are strict rules about how an SMSF can buy property and who can occupy it. Residential is very limiting, as basically no fund member, trustee or relative can occupy the property. Commercial property is different as business owners can acquire their business premises in a SMSF and lease it back to their business, so that their business pays rent to their super fund.

There are many factors to consider when setting up and managing a SMSF, above are a few to get you started, however consultation with a Financial Planner and a Property Investment Advisor, is part of the beginnings of a successful SMSF.