How can I buy a house with my super fund?
Your super fund is YOUR money. So many people don’t understand or take responsibility for their super fund until later in life when they think it actually matters.
Yes, you do have some restrictions around your superannuation fund now, but there are also some pretty cool benefits and some pretty sophisticated stuff that you can do with it.
One of these things is to buy property with your super fund, even if you don’t have enough money to buy a house outright.
Step one – You are going to need a SMSF (Self Managed Super Fund)
You can buy houses, business property, shares, and even businesses if it ticks all the boxes.
Step 2 – Get a loan in your super fund
Depending on how much money you have in super, will depend on whether your super fund needs a loan. These are specialised loans specifically designed for SMSFs – called limited recourse borrowing loans. It’s best to leave these to the professionals like a mortgage broker as they are different from your average home loan and require a few extra hoops to jump through.
Step 3 – Find the right house
Now that you are armed with your SMSF and a loan, you can go and find the right house. Again, because it is within a superannuation environment, there are some rules and regulations around where you get the house from and who ultimately rents it from you. As a general rule, you can’t deal with your family. So that means that you can’t buy a property from a family member and you can’t rent it out to a family member.
Same goes for you, you can’t ‘buy’ the property from yourself, and you definitely can’t live in it.
Step 4 – All transactions have to be at market value
The buying price and rental income MUST be at market value. That may mean getting valuations from a third party to make sure everything is happening by the books. The last thing you want is the ATO all up in your grill, and if you are not doing everything at market value, they sure will be.
Step 5 – The rent has to come into the super fund
It may be obvious, but it is important to point out that all the rent you receive from this investment property goes straight into the super fund. You can’t spend this money; it is there for the purpose of building your retirement nest egg inside your super fund.
Step 6- Get a good accountant and financial planner
There are yearly minimum requirements for SMSFs and your accountant and financial planner is the best bet to make sure you are dotting your ‘I’s’ and crossing your ‘t’s’. If you have a SMSF, you are essentially a trustee of a super fund, meaning that you are responsible for running a super fund. You can be under scrutiny from the ATO just like any major super fund, so having the right team behind you is pretty important.
Buying a property within your super fund doesn’t suit everyone, but it does suit some people, especially those with a keen interest in property. It can be a great strategy for many people as long as you are doing all the right things along the way.
This post is from our resident Financial Planner Cara Brett. Check out her details on the About us page.