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USING YOUR SUPER TO BUY AN INVESTMENT PROPERTY:

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Investing in property is a popular strategy for long-term financial security and potential capital growth. For many Australians, their superannuation is one of their largest assets, so it’s natural to consider whether it could be used to buy an investment property.

While this approach can offer strong returns and greater diversification, it comes with strict regulations and responsibilities. In this article, we’ll break down the essentials of using your super to invest in property and what you’ll need to weigh up before getting started.

Home office setting with a person looking at a laptop (only their arm is visible) they are looking at how there investment property is managed.

Can you use superannuation to buy an investment property?

Yes, but only through a Self-Managed Super Fund (SMSF). Setting up an SMSF gives you control over your super investments, including the ability to purchase commercial or residential investment property in Australia.

That said, running an SMSF involves more administration and compliance than keeping your money in a standard super fund. It’s not a decision to take lightly, and professional financial advice is essential.

What kind of property can you buy through an SMSF?

Through your SMSF, you can purchase either residential or commercial property, but the property must:

  • Be located in Australia
  • Be solely for investment purposes (you or any related party cannot live in or rent it)
  • Comply with the ‘sole purpose test’ (i.e., it must solely support retirement benefits for SMSF members)

There is no cap on the value or proportion of your SMSF that can be allocated to property, but it must fit within your broader investment strategy.

What are the benefits of buying an investment property with super?

There are several advantages to using your super for property investment:

  • Capital gains tax (CGT) advantages: If you sell the property during the accumulation phase, you may receive a CGT discount. If sold in the pension phase, the capital gain may even be tax-free.
  • Tax deductions: If your SMSF takes out a loan, interest expenses may be deductible.
  • Rental income: Rent from the property is taxed at a concessional rate of 15% while in accumulation mode.
  • Asset growth: Rental income and super contributions can help pay down the loan and grow equity over time.

However, outcomes will vary depending on your financial situation, so personalised advice is crucial.

What’s the process for financing a property with super?

SMSFs can borrow to purchase an investment property via a Limited Recourse Borrowing Arrangement (LRBA). Under this structure:

  • The loan is made to a separate trustee on behalf of the SMSF
  • Only the specific property purchased is used as security for the loan
  • If the loan defaults, the lender cannot access other SMSF assets

While this limits risk to your other retirement funds, LRBAs can be complex and costly to set up, again highlighting the need for professional guidance.

Risks and responsibilities to consider

Buying an investment property through super also comes with some downsides:

  • Liquidity issues: Property ties up large amounts of capital and may reduce fund diversification.
  • Higher setup and ongoing costs: SMSFs and LRBAs can be costly to establish and administer.
  • Compliance obligations: You must meet ATO requirements, including annual audits and valuations.
  • Restrictions on personal use: You cannot live in or lease the property to a related party.

Using your super to buy an investment property offers more control and potential tax advantages, but also greater responsibility. It’s not suitable for everyone, and expert legal, financial, and tax advice is essential.

If you’re considering this path, speak to a qualified financial adviser to determine whether it aligns with your goals, and how to structure your SMSF for long-term success.

Get further information on this process from 🔗 ATO – Self-managed super funds: Investing in property

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Remember, this article is general in nature and is not financial or legal advice. This information was correct a the time of publishing but may be subject to change. Please consult your professional financial and legal advisors before making any decisions for yourself.