Why Buy Property Using SMSF?

Posted on Mar 27 2015 - 6:06am by Business Day TV

tax documentsAre you interested in an investment portfolio that has tax incentives and provides you control where your money goes? Self-Managed Super Funds (SMSFs) may be the investment you are looking for.

Why Buy Property through SMSF?

There are dozens of investment options at your disposal, SMSF separates itself from the pack for many reasons.

You have control over your investments. SMSFs allow you to pilot your funds wherever you want them to go, thus you can diversify your portfolio to suit your needs. Many investments don’t offer the level of control you have over your funds.

Purchasing property through SMSF provides you with several tax incentives. Before your retirement, profits earned from rent and capital gains are taxed at 15%. The tax rate drops to 10% if you hold the property for over a year. Profits during the pension phase are tax free, these incentives alone may already stir up interest from potential investors.

Investors are not allowed to buy a residential property and lease it to themselves or other SMSF members, including relatives. But investors can buy a commercial property to rent back to their own business as long as they pay the rent.

What are the risks of SMSF investing?

SMSFs are an enticing investment option, but before you invest, determine if you are ready to face the risks as well.

If you apply for a loan to purchase a property using your fund, and you are in the negative, the tax incentive is assigned to another income within the fund and not to your regular source of income.

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SMSF investors are not allowed to live in the property they purchased, neither can their relatives. If you are planning to do this, look for other investment options aside from a SMSF.

There are additional fees to set up your SMSF and stringent penalties for violating the rules. You can hire a fund manage to help you run your SMSF so you can have better control over your investments.

You must have sufficient cash flow. You can get a loan to buy SMSF properties, but you cannot borrow money to improve or build the property. Therefore, determine if your cash flow is enough to cover for the expenses you incur before and after the purchase.

Like any other investment, there are rewards and risks in SMSF investing. Get the facts and weigh the pros and cons before making the move.