Buying property straight through Your Self Managed Super Fund

Buying property straight through Your Self Managed Super Fund If you have your money in a self-managed super fund (Smsf), to say the past eighteen months have been a little stressful is probably a giant understatement.

While the Gfc sent stock prices bipolar you've had to sit and watch asset prices rise, wishing there was a way to put some of that hard earned money to work in bricks and mortar. As it happens, there is. Change in rules for borrowing against Smsfs Back in September 2007 the rules governing self managed super funds (Smsfs) changed so that you could use your super funds to borrow to invest in an asset, such as property. Up until then, if you wanted to buy property, your fund had to buy it outright. But now you can borrow everywhere from 60-75% of the asset value depending on the type of asset and lender. So if you have - or are inspecting - a Smsf, this could be a great way to leverage super to grow your assets - and gain some impressive tax benefits too. What sort of asset can I buy? Through your fund, you can borrow to buy asset such as residential, commercial, retail, rural and holiday apartments. It's foremost to remember that this is for speculation asset only so you can't move in. How does it work? In plain English rather than excruciatingly jargon filled information (best left to your financial advisor): You get a lawyer to establish a asset trust surface your fund. You find a property, pay a deposit and borrow the rest from a lender straight through your Smsf. The asset Trustee purchases the asset and becomes the legal owner. The asset Trustee grants a real asset mortgage over to your lender. Rent from the asset is paid into your Smsf. You pay off the loan to the lender straight through your Smsf. The beneficiary of the asset is your Smsf. What are the benefits of borrowing for asset straight through your Smsf? While advantages will differ from person to person, they include: the capability to leverage an asset tax savings and benefits it gives you diversification of speculation from shares or managed funds 10% capital gains if you hold the asset for more than 12 months and potentially nil if the asset is sold when the fund is in pension phase tax deductible interest costs the bank or lender has no access to other assets in your Smsf. rent generated from the asset does not count as a taxed contribution. Can you borrow to invest in property? Things you need to take into account: Do you have the cash flow and capacity to service the loan? The bank will value the asset and resolve whether the rental revenue and any supplementary super contributions you make can cover the loan. Depending on whether you buy commercial asset or residential asset can have a bearing, especially as interest rates rise. Does your Smsf permit this type of borrowing? You need to make sure that your trust deeds allows it, and you might need to provide provisions for it to do so. Have this checked out by your lawyer. Does it work with my speculation strategy? A discussion with your speculation adviser would be foremost in this situation. Can I cover supplementary costs? Your Smsf is responsible for rates, land tax, interest and loan repayments, lender's fees, legal and accounting fees, repairs, asset management costs, insurances, etc Example of buying asset straight through a self-managed super fund Sam the butcher turned 50 on the weekend. Happy birthday Sam. He earns ,400 a year plus 9% super that goes into an business fund. He's also got 8,000 in savings. Sam wants to build up his nest egg for withdrawal with a asset speculation so he checks out a tip from one of his regulars and sets up a Smsf. Instead of rolling over his business fund, he decides to use the 8,000 as a deposit. He finds a house that costs 0,000 and borrows 2,000 via his fund. After 10 years of capital growth at say, 4%, the value of the asset is 0,912. Assuming 7.5% interest p.a. Over the 10 years he owes 7,813. Because Sam has been wage sacrificing, his tax on contributions is 15%. If he'd been paying surface his fund, he would have had to pay 31.5% including the Medicare levy. Sam decides to sell his asset and now has 3,099 in his fund - instead of 6,793 - production him 6,306 good off...and laughing 'til the cows come home. Buying property straight through Your Self Managed Super Fund