Investing in property through your super: is it the right move for you?

Scrolling through social media, you’ll find many companies continuing to promote the potential of buying investment properties through superannuation as a path to incredible wealth creation. However,  as is so often the case with financial advice that’s not from a trusted source, while some information may be accurate, much can be vague, misleading, or just plain wrong.

Can you buy property in your super fund?

There are a number of criteria that must be satisfied before you can buy property through your own Self-Managed Superannuation Fund (SMSF). 

First, you need to be legally eligible to be a director of your fund. To qualify as a director, you must: 

• Be over 18 years old
• Have no convictions for offences involving dishonesty or civil penalties under superannuation laws
• Not be an undischarged bankrupt, nor be disqualified by regulators like the ATO or APRA
• Be able to demonstrate the capability to manage the affairs required of a trustee

If you haven’t already set up your SMSF, this is not a difficult process for an experienced accountant, and of course, the LDB team is here to support you through the process if you need it. You need to consider if your super balance is sufficient, if you go with an individual or corporate trustee, and allow for the initial set up costs.

“Setting up an SMSF isn’t a difficult process, but it requires careful planning and financial readiness.”

Once you’re all set up in your SMSF and have your eye on a property, you’ll need to have funds in your super to cover the initial costs of the purchase and deposit, and be able to secure the right financing when the time is right.

With these criteria satisfied, yes, you could potentially buy property with your superannuation fund.

The complexity of borrowing

We mentioned that you’d need to be able to secure the right financing for your property, and if you plan to borrow to purchase your investment property, things can get a little more complicated. This is because the super fund itself cannot borrow and requires the establishment of another trust to hold the property on behalf of the superfund until the debt is repaid. Additionally, the loan is not a straightforward home loan — it requires a Limited Recourse Borrowing Agreement, or LRBA, which has specific conditions.

To help our clients understand the specifics of these special loan agreements, we’ve also published this piece on LRBAs.

Should you buy property in your superfund?

Just because you can, it doesn’t mean you should. If you qualify to buy property in your SMSF, and you either have the financial capacity to make the purchase outright, or can secure financing, it’s still important to ask yourself if it’s the right investment decision before making any commitments. While we would always recommend obtaining expert financial advice that takes into consideration your specific circumstances, here are some general guidelines for making your decision.

Assess with your financial plan

Any investment, whether inside of super or outside, and whether it involves shares, property, or another asset, should be part of a broader financial plan. Without actual objectives and a risk assessment, it’s challenging to determine if this investment strategy is right for you. Make sure you speak to your financial planner or adviser before making any commitments to buying property in your super fund.

Understanding types of property investments and diversification

There are strict rules about the types of property that can be bought in super, how they can (or can’t) be used, and what you can do with them. Make sure what you intend to do with your property complies with superannuation law before committing to any purchase.

If you don’t already own a property, your first purchase might be a principal place of residence. If you already own your home, or are currently paying it off, consider the benefits of diversification. Residential property has been a solid investment in Australia over the long term, but diversifying into other investment types can reduce risk and seed more consistent wealth creation.

Alternatives to direct property investments

If diversifying is not for you, and you’re still keen on property, consider other property types which can be accessed indirectly through funds and financial securities. These options allow you to invest in high-quality retail, commercial, industrial properties, and even areas like hospitals or infrastructure with less capital, offering liquidity and without the hassles of direct property management.

When you’re nearing retirement

While buying property in a super fund has been a great way of creating wealth, it’s not so good for funding pensions in retirement, unless you own multiple properties or ones with high rental yields such as commercial properties. Funding retirement is better achieved with a diversified portfolio that contains a mix of  highly liquid financial securities. As such, the sooner you get used to the ebbs and flows of the share market, then the more relaxed you will be in retirement

The right strategy with expert advice

In the right circumstances, buying property through super can be a solid wealth accumulation strategy with significant tax advantages. Whether you’re considering buying property through your super, or need general financial guidance, our team can provide the expert advice you need to make informed decisions.

Call LDB on (03) 9875 2900 to discuss how we can assist you in navigating these options and ensuring that your investment strategies align with your financial goals.