5 Major Pros and Cons of Using a Self-Managed Super Fund (SMSF) to Buy Property

Self-managed super funds, or SMSFs, have become one of the biggest assets classes in Australia. According to the statistics, the number of self-managed super funds registered is over 1000 every week. The SMSF property enjoys the same financial benefits and concessions as retail, industry or corporate super funds, the key difference among them is the ability for members to take personal control of the assets invested. While buying an SMSF property seems to be a great investment strategy, but it is certainly not for everyone.

With the self-managed super fund, decisions are made by the trustee who has the capacity to develop a range of financial strategies. With investing in SMSF property, you get an advantage that is the ability to react quickly and decisively if an investment opportunity arises.

Here in this article, we’d like to share some pros and cons of buying property using Self Managed Super Funds.

5 Pros of Buying Investment Property Using SMSF 

1.  It can be tax-effective – As a preferred method for retirement savings, it helps save a lot on the taxes you pay. The earning within your superannuation funds are taxed at only 15%. The tax benefit is nearly 50% which is less than half the marginal tax rate paid by the majority of workers.

2.  Business benefits – With the SMSF, you cannot purchase a residential property to rent back to yourself, but you can purchase a commercial property to lease back to your own business. It provides you to pay a commercial rate of rent.

3.  You get better purchasing power – Combining your capital with the other members of your SMSF gives you the purchasing power you need to invest.

4.  Liquidity at retirement – We all know that the SMSF property proves to be a great source to ensure the better retirement.

5.  Direct control – With the Self-Managed Super Fund property, you have direct control of your investments and the diversification in your portfolios.

 5 Cons of Buying Investment Property Using SMSF 

1.  No personal benefits – Investing within the SMSF must be purchased via an arm’s length transaction. You cannot purchase from, sell to, or rent to a related party.

2.  Lack of diversification – Diversification is the concept of not having all your eggs in one basket. This is usually more difficult to achieve if your Self-Managed Super Fund owns just one or two large assets.

3.  Lack of sufficient cash flow – It is possible for the investors to borrow to buy property within the SMSF, but you cannot borrow to build or improve it. Make sure that your level of contributions is sufficient to cover any costs that you will need to meet from cash.

4.  It’s complicated – Investing in an SMSF property can be a complex affair and the penalties for getting things wrong may be higher than anything. However, you can pay a professional to run it for you.

5.  Reduced capital gains – Property investments with the SMSF are generally held for longer periods of time, which results in lesser capital gains tax bills. This is particularly lower compared with other assets such as shares.

Buying investment property through the SMSF is a great way to invest for retirement, but it is important for the investors to know everything about the methods. It is probably more relevant for the people who are only 20 to 25 years away from it. The investors not only have more super money at their disposal, but they are more likely to be able to hold the investment property until retirement to enjoy those benefits at the end.

Additional care must be given to when adhering to the strict regulations in order to ensure the investment endures. Take strict steps when trying to investigate all types of property to invest in to achieve the best returns for your superannuation.

Originally Published at InvestmentRealEstate.biz