Talk About superannuation

Planning superannuation success

Tips On How To Buy Property Using Superannuation Funds

The long term economic crises that have eaten away at people's savings have made real estate seem much more valuable than before as a tool for planning for a comfortable retirement. As a matter of fact, an increasing number of people are investing in property through their Superannuation funds. It hasn't always been easy to invest in property using accumulated Superannuation money since the costs associated were very high. However, there have been many changes in laws that simplify the process of how to buy property with super funds.

Most people prefer to use a SMSF (self managed super fund) to invest in property and plan for their retirement years since this method allows them a simple way to

* Save on income tax

* Eliminate paying capital gains tax in the case of an investment property

Many small business owners also use this investment method to get the maximum benefit from owning property. They use their Superannuation fund to buy commercial property to run their business from and then rent the property to the business, thereby reducing their operating costs. It is important to keep in mind, however, that the rental rates should be in keeping with existing rates in the market at that the time.

Important point to note: When a residential property is purchased with a SMSF, the trustees or any other member of the fund is not permitted to live in the property. This also applies to properties which have been purchased as holiday homes. There are strict penalties for this.

If you wish to find out how to buy property with super funds then the following information will be of great use to you:

Tip 1. Start by establishing a SMSF, preferably by getting help from an experienced and qualified financial consultant. There is a lot of paperwork that generally needs to be done and the consultant will do all the work necessary to set up bank accounts, trust deeds etc. A special bare trust known as a Custodian or Property Trust will have to be established.

Tip 2. Once your SMSF is in place, you need to transfer your Superannuation funds into it. You can start such a fund singly or with others. For instance, you might decide to pool your Superannuation funds with those of your spouse in order to buy a property jointly.

Tip 3. You should then apply to a bank of your choice to get a loan pre-approval based upon the total money you are willing to spend on the investment. The bank will go through its regular process for loan approval and will require certain documents in order to check whether they are in order.

Tip 4. You can start searching for a suitable property once you have a loan approval in hand. You have to follow normal processes for selecting the property and closing the deal.

Tip 5. The legal title to the property in question will be mortgaged to the lender who also earns interest as per the loan agreement.

Tip 6. As the manager of a Superannuation fund, you need to be absolutely scrupulous in keeping the accounts of the funds separate from your personal finances. One of the legal requirements of managing such a fund is that you have to administer it in the right way. For instance, you are required to maintain all necessary records and even get the fund audited annually.

Since there are many rules and regulations that govern the use of SMSFs to buy property and there are many penalties for non-compliance; even small deviations from the rule are punished; it is best to make such an investment only after getting professional help. If used properly, this investment route can certainly result in good returns.


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© 2015 Peter Miller, Financial advisor. 12 Pike St, New York, NY 10002
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