Things to consider before investing with your SMSF

Dilleen Property Group 2022

For dedicated property investors aiming to expand and build their property portfolios, investing with Self Managed Super Funds (SMSF) can be an effective way to continue building your portfolio when there are factors affecting the serviceability under your personal name.

The process may be slightly different to investing under your personal name hence you should take these factors into account:

Higher Deposits

Unlike investing under your personal name, where you can use a 5% or 10% deposit, investing using your SMSF requires you to put down a 20% deposit in order to purchase a property.

Higher Interest Rates

It is important to note that interest rates will be higher when investing with SMSF because banks will add a premium to the interest that SMSFs pay to counteract for the risks the bank might have to face.

Longer process required to set up SMSF

The process of setting up a SMSF takes up to between 6 to 8 weeks as you will need your SMSF to be approved by the ATO.

Higher Costs

There are also higher costs associated with using SMSF to invest in property. It generally costs between $3000 - $5000 depending on the lender you are using and the work that is required for your situation.

No equity extraction

Once you purchase a property using your SMSF, you should keep in mind that you cannot extract equity from the property to purchase another one. If you decide to sell the property in the future, the gained funds will also stay in your super fund.

Bank Assessment

If you are hesitant about putting down a 20% deposit for your investment property, the bank will assess the super contribution from your employer and the rental income received from other investment properties to assess your serviceability. They will also look at your credit conduct to ensure loans can be met. When purchasing an investment property with a SMSF, the bank assessment is more lenient as they do not have to look at your assets and liabilities under your personal name, the assessment is conducted based on your super fund.

If you require assistance or have inquiries about investing with your SMSF, you can contact Marcel Collingnon from C2 Financial Group for more information.

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.