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Should you buy property with your self-managed super?

Posted by Sean O'Kane on 30 April 2015

Borrowing money to buy property through your self-managed super fund (SMSF) is becoming increasingly popular in Australia. Lots of medical specialists seem to be doing it, but is it right for you?

This kind of investment has risks as well as potential benefits. Before you decide to buy property through your SMSF, you need to think carefully and feel confident that this step fits into your overall financial advice plan.

To help guide your thinking, we've put together the following up-to-date summary of potential benefits and pitfalls of SMSF property investment.

For more detailed information, and a chance to speak to one of our financial planning partners in person, click here to register for one of our free upcoming evening seminars in:

- Cairns, 21 May, Shangri-La Hotel
- Townsville, 4 June, Rydges Southbank
- Brisbane, 18 June, Fireworks Gallery, Newstead

Reasons to consider using your SMSF for property investment
- Up until retirement, investment income associated with the property (i.e. capital gains, rent) is taxed at a top rate of only 15%.
- If you still own the property after you retire, you will pay no tax on either capital gains (if you sell) or rent (if you keep it).
- You can invest in paying off the mortgage on your own commercial property rather than paying rent to someone else.
- Historically, property has provided good investment returns.
- Properly managed, debt can be used to create wealth.

Possible pitfalls of using your SMSF for property investment
- It's not about negative gearing (as it is if you buy a property in your own name). The loan with a SMSF has to be paid off. In our experience this means you need a minimum of 30% deposit for commercial property and 40% to 50% for residential
- The quality of your property investment is always important. Location plays a big role, and an inferior property will still be that whether it's purchased using super or not.
- Australia's Reserve Bank and economists have recently expressed concerns that the property market is overheated.
- Buying a property through an SMSF is complicated and can be expensive to set up and manage.
- Property is 'illiquid' (can't be easily converted to cash), so you need to invest for the long term.
- For smaller fund balances, buying property can lead to an undiversified portfolio, increasing your investment risk.

If you're considering purchasing a property through your SMSF, seek professional advice to make sure this move is part of a broader plan to enhance your financial future.

For further information, contact Medical Financial Group
Tel:  (07) 3363 5800
Email:  info@medicalfinancial.com.au
Web:  www.medicalfinancial.com.au

Author: Sean O'Kane Connect via: LinkedIn
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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

The financial planning services are provided by Medical Financial Pty Ltd trading as Medical Financial Planning (AFSL 506557)