SMSF Property Investment
Our finance partners are seeing a significant increase in the number of people looking to set up a self-managed super fund to invest in property, and this week they share what they believe are the three key reasons for this.
Serviceability – Higher interest rates are making it difficult for people to borrow enough money to purchase an investment property. When assessing if your SMSF can borrow, lenders do not consider your personal debts such as your home loan, they only assess income and expenses within your super fund, in most cases this results in a higher achievable purchase price.
Reduced scrutiny from the ATO – Traditionally, the ATO’s guidelines suggested that someone would need a minimum super balance of $500,000 before they consider setting up a SMSF. Any funds setup below this balance were investigated by the ATO, in more recent times we are seeing the ATO being comfortable with lower balances of around $250,000.
Cost of living pressure – With the average person now spending 50% of their wage on mortgage repayments, coupled with the increase of all household expenses, there is little money left to invest in property. People are turning to using their super contributions to fund investment property portfolios.
What do you need to buy a property inside of super?
Super Balance – A combined super balances of $250,000 should be enough to get you into the property market at a purchase price of $700,000. You can reach this figure either by yourself or with your partner. Most lenders will allow you to borrow 80% of the purchase price within your SMSF. Your super balance will need to fund the deposit, stamp duty, and retain 10% of the loan amount in cash.
Super Contributions – Using the above scenario of a $700,000 purchase price, you will need approx. $35,000 per annum in super contributions plus rental income. Factoring in employer contributions only, a combined income of $300,000, either as a single borrower or with a partner, will attract $35,000 in contributions.
There’s lots to consider when purchasing a property inside of your SMSF. Apart from the cost involved, you need to ensure it is the right move for you and can help your meet your long term financial goals.
If this is something you are considering, feel free to reach out, we have a wealth of knowledge at our disposal and are more than happy to assist.