Buying a property is exciting and rewarding, especially if the property will be an investment opportunity to gain some extra income for your golden years.

Research is essential

If you’d like to explore alternative buying possibilities, as opposed to taking out a mortgage, you might look towards you self-managed superannuation fund (SMSF) as an option. However, it’s important to look at some of the advantages and disadvantages before you make your final decision.

• A major drawcard is the tax implications related to SMSF property purchasing. Earnings on your superannuation fund are only taxed at 15% and if you still have the property when you retire, any earnings on it will be tax free. This include rent and the purchase price if you sell the property;
• Buying property with your SMSF is seen as a low-risk investment, making it a safer way to diversify your investment portfolio if you can afford other investments as well;
• Through salary sacrifice, the loan repayments for the property can be tax deductible;
• You can combine your SMSF funds with that of your partner or family member to buy a higher income-inducing property;
• Your property could be untouchable if you are declared bankrupt under certain circumstances.

• Even though the property is your investment, you and your family or associates cannot use it for personal use;
• The initial set-up costs are higher than those of traditional lending options;
• You cannot use funds from your SMSF to renovate or update your property;
• There are high penalties payable for not adhering to certain processes and requirements;
• You will still be required to pay stamp duty on your property;
• If the property is your only investment made from your SMSF, and you cannot afford any more, then your investment portfolio is not diversified and you essentially have all of your eggs in one basket;
• You need to be aware that your property may be untenanted for a certain period, resulting in no income to set off your loan and/or pension payments.

There are many factors to consider before deciding that your SMSF is the best way to purchase property, and a fair amount of research is definitely required before you determine a solution