There is no reason why you cannot buy an investment property in your self-managed super fund (your SMSF).
But you need a strategy, such as:
- Buy a property with more rent coming in than loan repayments and outgoings going out, so that it ‘looks after itself’, or as they say, is cashflow neutral. There is no sense in making a tax loss to save tax in a super fund when the tax rate is 15 cents in the $1!
- The property cannot be a lived in by you or your family. The property cannot be a property development – super funds are not allowed to develop property.
- The super fund outlays 20% to 40% to the price and borrows the rest. This multiplies the return on investment. Borrowing is called ‘leverage’ or ‘gearing’.
- Wait a while for the property to increase in value. An increase in property value creates a capital gain. If you wait perhaps 15 years, the super fund outlay will increase many times more than the property value increase due to the borrowing.
- Don’t sell until you retire, and you will not pay capital gains tax.
In the video, we explain how the strategy works, with this example:
| Buy Price | $500,000 | Sale Price | $1,250,000 |
| Loan | $400,000 | Loan payout | $200,000 |
| Outlay | $100,000 | Sale Proceeds | $1,050,000 |
If you deduct $50,000 from the Sale Proceeds for stamp duty, buy and sell expenses, and capital gains tax, that leaves $1,000,000 of the sale proceeds as the profit. The outlay of $100,000 has increased 10 times! Note the loan payout is less than the loan because the loan has been paid down over time.
Video link Can I buy an investment property in my super fund?