Buying a property with superannuation (super) money is an increasingly popular way for Australians to invest in real estate. It can be a great way to get into the property market, or to add to your existing portfolio. However, there are a number of things you need to know before you get started.
How does it work?
When you buy a property with super, you are essentially using your superannuation savings to purchase the property. This means that the property is owned by your super fund, and you will not have direct ownership of it. However, you will be able to live in the property and rent it out, and you will receive any capital gains when the property is sold.
There are a number of benefits to buying a property with super. Firstly, it can be a tax-effective way to invest. Superannuation is taxed at a lower rate than personal income, so you may be able to save money on tax by investing in property through your super fund.
Secondly, buying a property with super can help you to get into the property market sooner. If you do not have a large deposit saved, you may be able to use your super to purchase a property that you would not otherwise be able to afford.
Finally, buying a property with super can help you to diversify your investment portfolio. Property is a different asset class to shares and bonds, so it can help to reduce the risk of your overall investment portfolio.
What are the risks?
There are also a number of risks to consider before buying a property with super. Firstly, you will be giving up control of your superannuation savings. This means that you will not be able to access your money until you retire or meet certain other conditions.
Secondly, you may have to pay tax on any capital gains when the property is sold. This is because superannuation is taxed at a different rate to personal income. Finally, there are a number of fees and charges associated with buying a property with super. These fees can eat into your investment returns, so it is important to factor them into your decision-making process.
Is it right for me?
Whether or not buying a property with super is right for you will depend on your individual circumstances. If you are considering buying a property with super, it is important to speak to a financial adviser to get personalised advice.
1. Eligibility
In order to buy a property with super, you must first be eligible to make superannuation contributions. To be eligible, you must be a member of a superannuation fund and meet certain other criteria, such as being an Australian resident and being under the age of 65. If you are not eligible to make superannuation contributions, you will not be able to buy a property with super.
There are a number of reasons why you may not be eligible to make superannuation contributions. For example, you may be self-employed and not earning enough income to meet the minimum superannuation guarantee threshold. Alternatively, you may have reached the superannuation contribution caps for the year. If you are unsure whether you are eligible to make superannuation contributions, you should speak to a financial adviser.
Buying a property with super can be a great way to get into the property market or to add to your existing portfolio. However, it is important to make sure that you are eligible to make superannuation contributions before you start the process.
2. Contribution limits
When it comes to buying a property with super, it’s important to be aware of the contribution limits. These limits are set by the ATO and they determine how much money you can contribute to your super each year. There are two types of contribution limits: concessional and non-concessional.
- Concessional contributions are contributions made by your employer on your behalf, as well as any personal contributions you make to your super. These contributions are taxed at a lower rate of 15%, which can help you to save money on tax.
- Non-concessional contributions are contributions you make to your super from your after-tax income. These contributions are not taxed when you make them, but they are taxed when you withdraw them from your super.
The concessional contribution limit for the 2022/23 financial year is $27,500. The non-concessional contribution limit is $110,000. If you exceed these limits, you may have to pay excess contributions tax.
It’s important to be aware of the contribution limits when buying a property with super. If you exceed these limits, you may have to pay excess contributions tax, which can reduce your investment returns.
3. Investment strategy
An investment strategy is essential for any property purchase, but it is especially important when buying with super. This is because superannuation is a long-term investment, and you need to make sure that your strategy is aligned with your retirement goals.
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Facet 1: Define your investment goals
The first step in creating an investment strategy is to define your investment goals. What do you want to achieve with your investment? Are you looking to generate income, capital growth, or both? Once you know your goals, you can start to develop a strategy to achieve them.
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Facet 2: Research different property markets
Once you know your investment goals, you need to research different property markets to find the one that is right for you. Consider factors such as,, and infrastructure development. You should also speak to a real estate agent to get their insights on the local market.
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Facet 3: Choose the right property
Once you have chosen a property market, you need to choose the right property. Consider factors such as location, size, and amenities. You should also get a building inspection to make sure that the property is in good condition.
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Facet 4: Finance your purchase
Once you have found the right property, you need to finance your purchase. You can do this through a mortgage or by using your superannuation savings. If you are using your super, you will need to speak to your superannuation fund to find out what options are available.
By following these steps, you can develop an investment strategy that will help you to buy a property with super and achieve your retirement goals.
4. Tax implications
When you buy a property with super, the property is owned by your super fund. This means that when you sell the property, the capital gains are taxed at a different rate to personal income. The tax rate on capital gains from superannuation is currently 15%, which is lower than the personal income tax rate of 22%.
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Facet 1: Tax implications for different types of contributions
There are two types of contributions that you can make to your super: concessional contributions and non-concessional contributions. Concessional contributions are taxed at a lower rate of 15%, while non-concessional contributions are taxed at your marginal tax rate. When you sell a property that was purchased with super, the capital gains are taxed at the same rate as the contributions that were used to purchase the property. This means that if you used concessional contributions to purchase the property, the capital gains will be taxed at 15%. However, if you used non-concessional contributions to purchase the property, the capital gains will be taxed at your marginal tax rate.
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Facet 2: Tax implications for different types of properties
The tax implications of selling a property that was purchased with super will also depend on the type of property. If you sell a property that was used as your main residence, you will be entitled to a capital gains tax exemption. This means that you will not have to pay any tax on the capital gains. However, if you sell a property that was used as an investment property, you will have to pay tax on the capital gains.
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Facet 3: Tax implications for different investment strategies
The tax implications of selling a property that was purchased with super will also depend on your investment strategy. If you sell a property that was purchased with super and then use the proceeds to purchase another property, you may be able to defer paying tax on the capital gains. This is known as a rollover.
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Facet 4: Seeking professional advice
The tax implications of selling a property that was purchased with super can be complex. It is important to speak to a financial adviser to get personalised advice before making any decisions.
By understanding the tax implications of selling a property that was purchased with super, you can make informed decisions about how to structure your investment.
5. Fees and charges
When considering how to buy property with your super money, it is important to be aware of the various fees and charges involved. These fees can vary depending on the type of property you are buying, the superannuation fund you are using, and the lender you choose.
Some of the most common fees and charges associated with buying a property with super include:
- Establishment fees
- Lender’s mortgage insurance
- Valuation fees
- Legal fees
- Stamp duty
- Ongoing management fees
It is important to factor these fees into your decision-making process, as they can eat into your investment returns. For example, if you are buying a property with a purchase price of $500,000, you could pay around $20,000 in fees and charges. This means that you would need to earn a capital gain of at least $20,000 before you start to see any profit on your investment.
To minimise the impact of fees and charges, it is important to compare different superannuation funds and lenders before making a decision. You should also speak to a financial adviser to get personalised advice on how to buy property with your super money.
By understanding the fees and charges involved, you can make informed decisions about how to use your superannuation to invest in property.
FAQs on Buying Property with Superannuation
Here are answers to some frequently asked questions on using superannuation to buy a property:
Question 1: Can anyone buy a property with their super?
No, not everyone is eligible. You must be a member of a superannuation fund that allows property investment and meet certain criteria, such as being an Australian resident and under the age of 65.
Question 2: How much can I borrow from my super to buy a property?
The amount you can borrow depends on your superannuation balance, age, and other factors. You should speak to your superannuation fund to determine your borrowing capacity.
Question 3: What types of properties can I buy with my super?
You can buy a wide range of properties with your super, including residential properties, commercial properties, and land. However, there are some restrictions on the types of properties you can buy, such as purchasing a property overseas.
Question 4: What are the tax implications of buying a property with my super?
The tax implications will depend on the type of property you buy and how you use it. You may have to pay tax on any capital gains when you sell the property.
Question 5: What are the risks of buying a property with my super?
There are several risks to consider, such as the risk of losing money if the property value decreases. You should carefully consider these risks before making a decision.
Question 6: How do I get started with buying a property with my super?
The first step is to speak to your superannuation fund to determine your eligibility and borrowing capacity. You should also get professional advice from a financial adviser.
Buying a property with your superannuation can be a great way to build wealth and secure your financial future. However, it is important to understand the risks and tax implications before making a decision.
Ready to learn more about property investment with super? Continue reading below.
Tips for Buying Property with Your Super Money
Buying a property with your superannuation (super) money can be a great way to get into the property market or add to your existing portfolio. However, it’s important to do your research and understand the risks involved before you get started.
Here are five tips to help you buy a property with your super:
Tip 1: Determine your eligibility
Not everyone is eligible to buy a property with their super. You must be a member of a superannuation fund and meet certain other criteria, such as being an Australian resident and under the age of 65.
Tip 2: Get your finances in order
Before you start looking for a property, it’s important to get your finances in order. This includes checking your credit score, getting pre-approved for a loan, and determining how much you can afford to borrow.
Tip 3: Do your research
Once you know how much you can borrow, it’s time to start researching different properties. Consider factors such as location, size, and amenities. You should also get a building inspection to make sure that the property is in good condition.
Tip 4: Choose the right superannuation fund
Not all superannuation funds allow you to buy property. It’s important to choose a fund that offers this option and that has a track record of good investment performance.
Tip 5: Get professional advice
Buying a property with your super can be a complex process. It’s important to get professional advice from a financial adviser or mortgage broker to help you make the right decisions.
By following these tips, you can increase your chances of buying a property with your super and achieving your financial goals.
In Closing
Buying a property with superannuation (super) money can be a great way to get into the property market or add to your existing portfolio. However, it’s important to understand the risks and tax implications involved before you get started.
By following the tips outlined in this article, you can increase your chances of buying a property with your super and achieving your financial goals. Remember to do your research, get professional advice, and make sure that you understand all of the risks involved.
With careful planning and execution, buying a property with your super can be a smart investment that helps you to build wealth and secure your financial future.
