Investing in Property Using a Self-Managed Super Fund (SMSF)

Property Investing using self-managed super fund


Love it? Share It!

Property Investing using self-managed super fund

Investing in Property Using a Self-Managed Super Fund (SMSF)

The topic of Self-Managed Super Fund (SMSF) investing has been buzzing among investors. You may have started wondering if this could be the way you make it to prolific success in property investing so we brought in the experts from Xin Mortgage to send some great insights and nifty advice our way.

Let’s dive in some key takeaways from the workshop: 

Understanding SMSF


A Self-Managed Super Fund (SMSF) is a private superannuation fund that you manage yourself. It can have up to six members, and all members must be trustees, responsible for decisions and compliance with superannuation laws. Members of the SMSF have full control over their investment decisions and can invest in a range of assets, including property, shares, bonds, physical commodities and more.

According to the ATO, over 1.1 million Australians are members of SMSFs as of June 2022, with $868.7 billion in super assets under management. Most SMSFs (68.3%) have just two members, usually a married couple. About 24.8% have one member, while the remaining 6.8% have three or four members, typically parents and their adult children.

Who Can Benefit from SMSF Investing?


SMSF Investing is suitable for people who have good savings in their super. If you have around $250K-$300K in your super fund, it’s good to explore the possibility of investing and do something meaningful with your super money. These people often are:

  • People Approaching Retirement: Those wondering what to do with their super savings.
  • High-Income Earners: Individuals with high-salary and multiple income households.
  • New Migrants: Individuals with substantial cash but no superannuation, looking to reduce their tax liabilities.
  • Novice Investors who want to invest in property and diversify into other assets while maintaining a level of risk control. 
  • Mid-Life Investors aged between 45-55 reshuffling their investments – upgrading homes, selling some properties, and shifting investments entirely into superannuation.

Why Consider SMSF for Property Investment?


SMSFs are becoming more cost-effective and offer several advantages for property investment for high-income earners and families:

  • Financial Planning: SMSFs allow for inter-generational planning and can include multiple contributions from various family members.
  • Tax Optimisation: SMSFs offer significant tax benefits, including a tax-free environment upon retirement.
  • Control: SMSFs provide greater control over investment choices compared to traditional super funds.
  • Lending: In the superannuation environment, lenders look purely at your individual incomes, super contributions, and estimated rental income from your investment property.

Considerations Before Using an SMSF to Invest in Property


  • Investment Strategy: A clear investment strategy will determine how you implement SMSF on your property investment journey.
  • Cash Flow: Understand how to manage interest rate pressures and assess your SMSF’s cash flow and repayment capacity.
  • Property Use: The property can only be an investment, providing retirement benefits to SMSF members. It cannot be the primary residence for fund members or related parties.
  • Stability: SMSF is not suitable for individuals who frequently change their tax status or move in and out of Australia.
  • Loan Strategy: Ensure there is a plan to repay the loan in case of illness, marriage breakdown, job loss, or rental vacancy.

What You Can and Can’t Do with SMSF Property Investment


What You Can Do:

  • Add Family Members: Add children to the fund and pass the assets to them, facilitating inter-generational wealth transfer.
  • Rental Income: Rental income from the property goes directly into the SMSF, boosting retirement savings and funding loan repayments.
  • Simple Repairs: Insignificant repairs and maintenance can be paid for from borrowed funds.

What You Can’t Do:

  • Cash Out: You can’t cash out money or equity from the SMSF until retirement.
  • Refinance: Refinancing the SMSF property is not an option.
  • Modify the Property: Major modifications that change the character of the property are not allowed until the SMSF property loan is paid off.
  • Leverage Equity: You cannot capitalise on the property’s value unless it is sold.

Benefits of Owning Property through an SMSF


  1. Inter-Generational Planning:

Adding children to the SMSF can help pass on wealth efficiently, ensuring the family’s financial stability for generations.

  1. Multiple Contributions:

With more family members contributing, the SMSF can grow more quickly and provide a larger pool of funds for investment.

  1. Tax Advantages:

Rental income is taxed at a concessional rate of 15% during the accumulation phase and can be tax-free in the pension phase. Capital gains on the property are taxed at a discounted rate of 10% if held for longer than 12 months.

Lending Environment for SMSFs


  • Many financial institutions have removed their SMSF lending products from their offering. Non-bank lenders still provide SMSF loans, though their rates can be higher.
  • SMSF property loans tend to be more costly than other property loans. 
  • Loan repayments must be made from your SMSF, which must have funds available to meet the loan repayments.
  • It’s better to choose SMSF loans with offset features to save money and reduce monthly repayments.

For example: With careful planning and considering the annual superannuation contributions and a 70% loan-to-value ratio (LVR) with offset features, you can aim to purchase an investment property valued at $700,000 to $800,000. If the property is self-sufficient, the rental income will cover the loan repayments, gradually reducing the principal. Additionally, extending the loan terms can lower the repayment amounts, making it feasible to add a new property to your portfolio every 10 years.

What Kind of Property Can You Buy with an SMSF?


You can invest in both residential and commercial properties, provided they comply with SMSF rules. The property type should align with your investment goals, considering expected yield and maintenance costs.

  • Nearing Retirement: Opt for a property with higher rental yield to provide steady income from rent.
  • More Time Until Retirement: Focus on a property with great potential for price appreciation to help your super funds grow more significantly over the long term.

Investing in property using an SMSF can be a smart move for those looking to optimise their super funds and enjoy tax advantages. By doing your due diligence, working with professionals, and understanding the rules, you can make informed decisions and potentially secure a prosperous retirement.

About Xin Mortgage

Xin Mortgage started around 10 years ago as a mortgage broking company and now has three offices in Sydney. They are a trusted financial services provider offering tailored mortgage, wealth, and custom loan solutions to customers seeking financial freedom.

If you’re ready to explore property investment, book a call with our expert team today. We’re here to help you with a clear investment strategy and find out what property types will help you achieve that goal. Book a free 30-min consultation session.

Scroll to Top