Can I Buy Property with My Super?
Why I Wrote This Article
Recently, I worked on a few real estate deals where buyers purchased property through their super (SMSF). I also had some interesting conversations with their accountants. I thought it would be helpful to share what I learned, in a simple question-and-answer format, so others can better understand how SMSFs can be used in property investment.
Q: Can I really use my super to buy property?
A: Yes. Many buyers now use their Self-Managed Super Fund (SMSF) to invest in property. It’s separate from your personal finances and can help increase your borrowing capacity.
Q: How popular are SMSFs in Australia?
A: Very popular. There are about 650,000 SMSFs with over 1.2 million trustees across the country, and the number keeps growing as more people look for opportunities.
Q: Why would I buy property through an SMSF?
A: There are several benefits:
- You get more control over your super.
- You can choose different asset classes, not just shares.
- You can borrow money through your SMSF to buy higher-value assets.
- There are tax benefits—SMSFs are one of the most concessionally taxed environments in Australia.
Q: What kind of tax benefits are there?
A: If you buy property in your SMSF while you are still working (the accumulation phase), you can later hold it in pension mode when you retire.
- In pension mode, all income and capital gains are tax-free.
- For example, if you sell a property after 20 years with a large capital gain, you won’t pay any tax.
- Even before retirement, if you sell after holding for more than a year, capital gains tax may be as low as 10%.
Q: Can timing the market make a difference?
A: Yes. Many investors use SMSFs to take advantage of property cycles.
- Buy when the market is rising.
- Sell when you’ve achieved a good return.
- Reinvest the profits into bigger or commercial assets.
This strategy has worked well for many, but it requires good timing and knowledge of the market.
Q: Are there risks involved?
A: Yes, definitely. Some of the key risks are:
- Diversification risk: If your SMSF invests only in property, you’re putting “all your eggs in one basket.”
- Decision-making risk: You make all the investment decisions, so if you choose poorly, you could lose money.
- Compliance risk: SMSFs must follow strict laws. For example, you cannot live in or use the property yourself.
Q: What should I do before using my SMSF to buy property?
A: Always get professional advice. Speak to your accountant or SMSF auditor before making a move. They can help you stay compliant and make sure you’re not breaking any rules that could cause serious problems later.
In summary: Buying property through your SMSF can give you higher borrowing capacity, tax advantages, and control over your super. But it’s not for everyone—it comes with risks and requires expert advice.