For most of us Australians the idea of superannuation is a set-and-forget. They are regular contributions (made by either you, or your employer) that accrue into savings so we can all really soak up those years in retirement.
Unknown by so many however, Australia’s superannuation systems actually provide for a great vehicle for you to start your investment portfolio if you decide to open a self-managed super fund (SMSF).
A SMSF in short, is when you manage your own super, rather than have it managed by your superannuation provider. By being in full control with your super, this allows you to choose the “what” when it comes to where you invest in, with investment properties becoming an increasingly popular choice for Australians in the last few years.
Interested in making this super investment dream a reality? We’ve put together some key points on what you need to know.
What’s in it for me if I invest super into property?
In short? If you buy smart, property is one industry that almost never goes backwards. Plus, the annual yield of rent can be mighty competitive against the return of share portfolios, and that’s before you consider how the property has grown!
So how do I invest my super into a property?
You Can’t Live in the Home
First home-owners or those looking to dwell on the property won’t have access to their super. This scheme is strictly for those looking to invest their super into an investment property. The logic being that buying your first home only satisfies your living requirements, so investing your super might leave you short of assets by the time retirement rolls around.
You Need an SMSF
The decision can only be made if you’re with a self-managed super fund (SMSF). Investing this way gives you more control over how your superannuation is invested. However, you’ll usually find there are greater fees (and greater risk if you’re not a finance wizz).
…and That SMSF Must Make All Loan Repayments
You can’t start off a loan with an SMSF, then make personal payments towards it. If your super starts this journey, your super needs to complete it.
You Can’t Invest Everything
For logical reasons, you can’t put every last cent of your super into a property. You’re required to keep a liquidity buffer (just a nest-egg in case it’s needed) of at least 10% of the property’s anticipated value in your SMSF. Also, banks will currently only let you borrow up to 70% of the property’s value, meaning that a minimum of a 30% deposit must come from your super.
SMSF Can’t Cover Renovations
We said there was red tape, and this is a classic example of it. The loan you make off your super can only apply to the purchase of the property, not any repairs or renovations. In fact, you’re not even allowed to make renovations until your SMSF loan is completely paid off. So it’s important to find the right house before investing your super.
While we’ve covered the big legal considerations, the MoneySmart website has all the considerations you’ll need to make. We always recommend that before you make any big financial decisions, you speak with a trusted financial advisor, and make sure you’re doing everything cleverly and legally.
So where do I start?
There are two people you should talk to – a finance expert, and a property expert. And wouldn’t you know it? We can help you with both!
To get your journey started, chat to the team at Upstate, and see what options are available for you.