Invest in Property Using Your Superannuation

Ever looked at your super and thought, “Is this really doing enough for my future?” You’re not alone. More and more Aussies are asking the same question, and turning to property as the answer. Instead of watching your super go into a default fund, investing superannuation into property gives you control. It’s a way to build real wealth, using an asset you understand and can track. And let’s be honest, property just feels more tangible than shares you can’t see. 

But before you jump in, there’s a bit to know about how to invest superannuation in a property. It’s not as simple as dipping into your super and buying a house. There are rules, responsibilities, and a clear process you’ll need to follow.

Let’s break it down, plain and simple.

Benefits of Investing with Your Superannuation

First things first, why even bother? What’s the benefit of using your superannuation investment for property?

Here’s why superannuation investment for property is worth considering:

• Direct control – With a self-managed super fund (SMSF), you’re not stuck with someone else’s idea of a good investment. You choose the property, the location, and the strategy.

• Capital growth potential – Property tends to grow in value over time. Pair that with rental income, and your investing superannuation plan could pick up real momentum.

• Tax perks – Your SMSF pays just 15% on rental income, and if you hold the property for over 12 months, capital gains are taxed at only 10%. That’s a great deal.

• Diversification – If your super is all in shares or cash, adding property can help diversify your portfolio and spread risk.

• Leverage – Through Limited Recourse Borrowing Arrangements (LRBAs), your SMSF can borrow to help fund your purchase. That means larger investments and larger profits, too.

Costs and Complexities

Now, let’s get real for a second, investing superannuation into property isn’t for everyone. There are a few complexities you need to know about.

• Setup costs – Starting an SMSF, getting legal advice, and managing it all comes with fees. Think a few thousand dollars upfront and ongoing annual costs.

• Borrowing challenges – SMSF loans aren’t like personal ones. Banks usually ask for 20-30% deposits and charge higher interest rates. 

• Lack of flexibility – This is a strict investment. You can’t live in the property or rent it out to your family. It has to be completely separate from your personal life.

• Liquidity issues – Property isn’t quick cash. If your SMSF runs into unexpected expenses, you might struggle unless you’ve planned for that.

• Strict regulations – Plenty of them. If you miss a compliance step, you could be hit with hefty penalties. 

So, yes, investing superannuation into property can work. But it’s not a hands-off option.

Rules & Compliance Checklist

Before you go looking for the perfect property, your SMSF has to tick a few boxes. After all, this isn’t just about buying smart, it’s about buying by the rules.

Sole Purpose & Requirements

The whole point of your SMSF is to save for retirement. That’s it. So:

• You can’t live in the property.
• Your kids, parents, or mates can’t live in it. 
• Every decision must be in line with the goal of building retirement benefits, not short-term gains or personal benefits.

Borrowing Constraints

Thinking of taking out a loan? Here’s what that looks like:

• It must be under a Limited Recourse Borrowing Arrangement (LRBA).
• The loan can only be used to buy one property at a time.
• If something goes wrong, the lender can only go after that property, not the rest of your SMSF.  

So the risk is somewhat contained, but you still need to borrow wisely.

Liquidity Requirements

Even with property in the mix, your SMSF has to stay liquid enough to:

• Cover admin fees and compliance costs.
• Make loan repayments (even during rental vacancies).
• Pay out benefits to members upon retirement. 

Believe us, a lack of smart planning here can cause major headaches later on. 

That’s why it’s crucial to set things up properly from the start, and that begins with understanding the structure that makes this all possible: the SMSF.

The SMSF Route: How It Works

If you want to buy investment property with superannuation, you need an SMSF. Retail and industry super funds won’t let you buy property directly.

Here’s the deal: 

An SMSF is a DIY super fund where you (and up to 5 others) manage your retirement savings (within strict ATO rules, of course). You choose the investments, keep the records, and stay on top of compliance. Sounds like a lot? It is, but with the right support, it’s manageable. 

Simply put, using an SMSF for property investment gives you direct control over your superannuation investment, but you also carry the responsibility.

But the upside? You get to decide where your money goes. And if you pick the right property in a high-growth location, that control could turn into long-term capital gains and rental income.

Step-by-Step Process for Investing Superannuation

If you’ve made it this far, chances are you’re seriously considering it. So, here’s a simple, clear step-by-step process of how to invest superannuation in a property:

1. Review your SMSF Strategy

Before anything else, make sure property fits your investment goals. Ask yourself:

• Will this asset help me achieve my retirement goals?
• Can I maintain liquidity in the fund?
• Can my fund afford it and handle a vacancy or two?

If your fund’s investment strategy doesn’t currently include property, you’ll need to update it.

2. Establish or Update the Superannuation 

If you’re starting fresh:

• Set up the SMSF structure with a corporate trustee.
• Create the trust deed and register the fund with the ATO.
• Open a separate bank account for the SMSF.

Already got an SMSF? Great. Just make sure it’s fully compliant and ready to buy property.

3. Take Help From Professionals

This step can save you a lot of stress down the line.

• Talk to a financial advisor to make sure this strategy works for your goals.
• Get an SMSF accountant to set everything up the right way.
• Work with a mortgage broker who understands SMSF lending.
• Join hands with a buyer’s agency like InvestorKit to find properties with real advantages.

P.S. The best way to invest superannuation is with people who know what they’re doing.

4. Source & Finance the Property

Now comes the exciting part: finding the right property.

• Look for properties with strong growth potential, high rental yields, and low vacancy rates.
• Get your loan pre-approval through an SMSF-friendly lender.
• Make sure the contract is in the name of the SMSF trustee.
• Use your SMSF cash for the deposit, and borrow the rest through an LRBA.

Every cent used (deposit, stamp duty, loan repayments) should come from the SMSF only.

5. Manage Post-Purchase

Once you’ve secured your chosen property:

• Appoint a property manager who’s well-versed with the SMSF regulations/
• Make sure all the rent goes straight into the SMSF account.
• Maintain squeaky-clean records for compliance and audit.

Sure, it’s a bit of work, but the long-term payoff can be worth it.

Conclusion

So, is it worth buying property with super? Definitely. If you’ve got the right setup, strategy, and support, then investing superannuation into property is a great idea. It gives you control, tax benefits, and a good chance to build your retirement wealth through property. But don’t just wing it. There are rules to follow and risks to consider. 

At InvestorKit, we help investors like you take smart, strategic steps into property using their super. Our deep market research and hands-on experience make it easier to spot the right opportunities and avoid costly mistakes. 

We’ll show you what’s possible and help you buy investment property with superannuation. 

Because the best way to invest superannuation? It’s with a clear plan, the right people, and a property that’s actually going places.

Know more about property investment with InvestorKit today.

References:

[1] – Realestate.com.au – How to use your super to buy property

[2] – Edmunds.com.au – Investing in property through SMSF

[3] – Darcyservices.com.au – Buying property with your super: Strategy guide