Getting into real estate investment is half the battle; boosting your rental portfolio is another. Fortunately, there’s a way to buy more rental properties and increase your passive income. The magic word is “super” or superannuation fund. You can utilise your super as leverage to secure a loan by buying a property through SMSF or a self-managed super fund.
Ready to explore this further? Here’s how to use your super to boost your rental portfolio:
Learn the basics of using super to buy a property
First, you need to set up your SMSF. Then, you can pool funds with other family members and friends since an SMSF can have up to six members. Then, your group or the trustees can decide how the pooled funds are invested in shares and other assets. As the property markets in Australia remain strong, it’s also practical to invest in rental properties.
The members or trustees of your SMSF are required to have a documented investment strategy before you can use it as leverage to secure an SMSF commercial property loan.
Once everything is set up, your SMSF can strengthen your capacity to borrow and boost your rental portfolio. After all, you don’t need to have saved up the total property value.
Say you have $500,000 in your SMSF. You could use $300,000 of that funds as a deposit and borrow another $400,000 to purchase a $700,000 apartment anywhere in Australia. By setting up an SMSF and securing an SMSF loan, you enjoy the benefits of financial gearing.
Know the rules around borrowing
Before taking out a property loan using your super, familiarise yourself with the rules around borrowing. One of those rules is you can’t use all the funds in your SMSF for a down payment when purchasing a rental property. You have to leave some behind as a buffer.
Another rule is you can’t live in a property you’re going to purchase. It doesn’t comply with the “sole purpose test,” which aims to deliver benefits to all the members upon their retirement. The property you’re going to purchase must benefit not only you but all the members of your SMSF. That’s why residential properties or holiday homes for your family are not ideal assets for an SMSF. It’s better to stick to investment properties like apartment complexes and warehouses to generate steady rental income for your self-managed super.
Minimise risks, maximise returns
When buying a property through SMSF, you should always keep the fund’s investment goals in mind. Aim to minimise risks and maximise returns. One way to do that is to pick a property located in an area that can be tenanted easily. Make sure the rent will cover the expenses of holding and maintaining the property. And don’t forget about the necessary insurance.
Moreover, consider the other costs in this financial move. Bear in mind the upfront SMSF setup fees and costs associated with yearly tax reporting and audit compliance. The long-term benefits of having a rental property through SMSF should outweigh the costs.
Seek professional advice
Like with any financial decision, it’s best to seek advice from a financial adviser or SMSF loan experts before setting up an SMSF to buy a commercial property. That way, you can fully understand how your super will operate as leverage to boost your rental portfolio. In turn, you or other trustees can set an investment strategy that benefits all the members.
Contact SMSF in Focus Today
Using borrowed funds to invest in profitable real estate assets can open up a wide range of long-term wealth-building opportunities. It’s crucial to do it right—from the outset.
SMSF in Focus is here to guide you every step of the way. Our team is here to help:
- Handle the entire SMSF setup process
- Create a viable investment strategy
- Optimise and boost your SMSF’s borrowing capacity
- Structure your SMSF’s commercial property loans to suit your investment goals
- Source the best SMSF loans to fund your real estate purchase
With various loans available for rental properties in Australia, our team will help analyse your situation to find the best loan option and keep your SMSF compliant. Contact us today.
