Is buying an investment property in my SMSF a good idea?

To make smart, growth-focused property decisions, you need to surround yourself with an expert team. Your professional team is critical when considering buying an investment property through your Self-Managed Superannuation Fund (SMSF) because of the complex rules and regulations surrounding superannuation.

According to the Australian Tax Office (ATO), the SMSF sector comprises nearly 600 000 funds with an estimated total value of $755 billion in assets. This amount is almost a third of Australia’s total super assets.

Many investors consider buying a property through their SMSF too complicated to be bothered! However, there are many benefits to getting it right in the long-term.

What you can do:

  • Invest in residential property
  • Invest in commercial properties
  • Small business owners may benefit from being able to occupy the property they operate their business out of and pay market-rent back to their SMSF.
  • There are tax deductions available, but they can only be deducted from the fund.

What you can’t do:

  • Transfer an existing residential investment property to a property held under an SMSF
  • The property cannot be acquired from a related party of a member
  • It can’t be lived in by a fund member or any fund members’ related parties 
  • It must not be rented by a fund member or any fund members’ related parties.
  • If an SMSF uses a loan to purchase a property, there are restrictions on the types of renovations that can be made. 

Other regulatory requirements include meeting the sole purpose test. Trustees can face severe civil and criminal penalties if the fund is seen to be contravening the sole purpose test. For example, leasing the property at market value to a related party.

Can I borrow money to invest in property through my SMSF?

Yes! You can borrow under strict borrowing conditions called a ‘limited recourse borrowing arrangement’ (LRBA). An LRBA is where your SMSF takes out a loan from a third-party lender for the investment property held in a sperate trust called a ‘bare trust’. The LRBA can only be used for a single asset.  

Proceed with caution!

You are ultimately responsible for running your SMSF. Get good advice from an SMSF professional to make sure your property investment complies with the law.

The Triple Zero Property team has helped many clients purchase a property through their SMSF once legal, accounting and financial advisers have set-up necessary structures. 

Please call 1300 897 000 to make an appointment so we can help you reach your property goals. 

Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek expert legal advice before you make any decisions regarding SMSF’s. 

How to Future Proof Your Investment Property

Interest rates are low.

Supply of new land and properties coming onto the market are in short supply.

Big increases in dwelling values have been predicted by the big banks.

So, can you go wrong buying an investment property in the current market?

Absolutely you can!

Buying a great property now needs to be a solid investment for the long term.

How do you future proof your property investment?

Buy in the RIGHT place.

This is really difficult at the moment with limited stock on the market.

How to future proof your property investment:

It is said so often that it is almost a cliché – ‘location, location, location’.

We believe it is said often for a reason – when it comes to property investment, location is key to success.

When you select the ideal property placement there are more factors to consider than many investors realise. Strategising on which states, suburbs and streets will provide better returns.

But before deciding ‘where’ you need to first make sure you know ‘who’…

Who are your ideal tenants?

Because your who will impact your where!

For example, some choose to appeal to students and therefore buy property near a university. It is important to consider that students are transient tenants with long holidays. This can mean long vacant periods and the international student cohort has dramatically fallen since the Covid-19 pandemic. When you can fit all of your belongings in the back of a car there isn’t much stopping you from leaving at the end of a lease!

Family tenants on the other hand generally stay longer. Once they are established in an area they are less likely to want to leave. If this group is your target market, not only will you choose to design a family orientated house, but you will think about their locational needs. It is important to consider the psychology of why they select a location to raise their family, and the different lifestyle drivers, human interest assets and economic activity indicators they will consider.

Here are some of the factors that come into play when deciding on the right place to invest to attract this market:

What opportunities does the location give for children’s education?

When there is a good school in an area, people are willing to move nearby so they are in the right catchment area. Often this can be the only way to get your children into a particular state school. Another important factor is the number of child care centres nearby – even if the parents work in another area, they often want their children to go to a good facility close to home.

How easy is it to get around?

People like to be near major transport hubs. For some this may be public transport options such as train stations and bus routes, or for others being near (but often not on!) major road networks, highways or tunnels. If you buy a property that is more isolated, and in a regional or rural area, you’ll tend to find lower capital growth and the property is harder to rent.

Is there a good shopping centre nearby?

There has been big shift in Australia over the past few decades where the community meeting point is no longer the main street, but the local shopping centre. Your tenants will be looking to make sure there is one nearby where they can go to meet all their social needs. It’s important that you find a property with a good shopping centre close by, or one that is proposed to open in the near future.

Are there plans for major infrastructure projects?

New or existing major infrastructure often means new jobs and a desire for people to live near these areas. This may be a new major hospital, airport, shopping centre, transport hub or industrial area, but it’s important to get in early before it has been constructed. This will allow you to benefit from the rewards that projects like this will bring. But as a word of caution be sure the project is set to have sustainable community benefits once delivered, not just significant involvement during the build. We have seen a lot of investors burnt in the mining towns because there was a big demand for housing during the setup phase, but that same demand wasn’t there once the project was fully operational.

Is there opportunity for employment nearby?

In a modern Australia, people get tired of travelling a long way to work unless they really have to. So finding a property that is close to significant employment hubs is essential to maximising the growth of your property, both for tenants and long term resale value.

What lifestyle opportunities are on offer?

Be sure to also evaluate what lifestyle opportunities are around the area you’re looking to invest in. Many tenants will be thinking of what weekend options the property will give them, being close to a beach, sporting facilities, good cafes or other lifestyle factors can be another box to tick off. People work hard during the week but want to enjoy where they live in their down time. And so if you can walk to a park, water body or café, this will assist in increasing rental returns.

What are the established capital benchmarks?

One of the final factors to consider is areas where good capital benchmarks are already established. When you go to the bank and the valuer goes out to value your property, having good comparable sales in the area can really help your property grow in value. This is especially important if you want to leverage the equity in your house.

These are just some of the considerations we make when reviewing property opportunities for clients. We understand that tenants make decisions on where to live based on many factors – rational, emotional, social and economic. Understanding the psychology of what tenants are looking for and trends in the market place is key when choosing where to invest.

If you’d like more information about the areas that are currently ticking boxes for us, please contact our team – we are always happy to share the latest property reports from independent property analysts.

This content is general information only. Your situation is specific and individual; as such, you should always consult a registered and qualified professional within the particular area of advice needed.

Should I buy property in 2021?

Last year may have changed the way we do a lot of things.

One thing has remained the same: buying the right property at the right price remains a solid long-term investment for you and your family.

Whether it is a property to live in or as an investment, now is a great time to take that all important first step. Interest rates are extraordinarily low and appear to remain so for some time and the property market is tipped to be red hot this year.

Here is a snapshot of what is happening overall in the property market:

  1. First-home buyer activity is at record levels, stimulated in recent months due to the low-interest rates and government stimulus.
  2. A shift to what has been labelled the ‘exodus to affordable lifestyle’ resulting in regional housing value rising at twice the pace of capital city markets.
  3. House values have risen by 3.5% over the past six months while unit values are unchanged, according to CoreLogic February 2021 research. 
  4. According to CoreLogic, every capital city witnessed a rise in housing values in February 2021, reaching a new record high as values continue to rise across the country.
  5. Rental vacancy rates are at an all-time low in many areas (except for some inner-city units), which are putting pressure on increasing rents. 
Sunshine Coast Duplex

So how do you buy the ‘right property’ in 2021?

  1. Formulate a plan: understand what you want to achieve and then make decisions accordingly – buying property should be a long-term investment.
  2. Be cautious: you’ll find everyone is going to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the success you are looking for.
  3. Research, research, research: mortgage rates, the area you want to buy and who to build with – please don’t go and buy the first property you see!
  4. Focus on what matters: Glossy brochures and the latest interior design trends are nice but investigate your builder’s structural quality and financials. Not everything that glistens is gold!
  5. Gather an independent team of experts: Conveyancer, mortgage brokers, developers, builders – there are a lot of moving parts in the process.

Now is the time to take action and set yourself up for the opportunities that will present themselves in 2021 – the market will move on!

If you want to build your property portfolio or take the first step into the market, the Triple Zero Property team can guide you to make smart decisions for you and your families’ future.

With no cost to you, we work to get the best result in a highly competitive property market.

In the current growth focused market anyone can make money through purchasing property, however, at Triple Zero Property we want to future-proof your investment and maximise your cashflow. Call 1300 897 000 so we can help you meet your property investment goals for 2021.

This content is general information only. Your situation is specific and individual; as such, you should always consult a registered and qualified professional within the particular area of advice needed.