Australians are always keen for new methods of making the most of their superannuation funds, and that’s exactly why such a large number of them decide to create Self-Managed Super Funds, then research ways to maximise their returns.
In the past, it’s been possible to buy property through an SMSF, but is it actually possible to use one to buy a holiday home? Well, not only is it possible, you can now use your SMSF to borrow money to invest in holiday homes, something that has only recently become an option.
This doesn’t only increase investor cash-flow to buy property, it also gives you a bit of breathing room with your budget, meaning you can invest in a property that might have been previously out of your reach. However, before moving forward, there a number of important considerations you should make. Read on to find out more:
The Numbers have to be Right
As with any other standard loan type, your SMSF must be able to show evidence of sufficient available funds, as well as the ability to make regular repayments. The majority of property purchases made through SMSF are for the purpose of investment properties, a situation in which monthly rent usually covers the repayment owed.
However, this might not always be possible with a holiday home and additional contributions may be required to solve this problem. On top of this there are general expenses including corporate fees and utility costs that you’ll need to factor into your monthly budget.
You Need to Understand the Rules
If you’re part of an SMSF, you need to understand your obligations relating to taxation, legislation and rental income. You should spend some time getting familiar with the Superannuation Investment Scheme Act, as well as the phases of your SMSF and how tax will be applied to your capital gains.
You should also work to understand how borrowed funds can be put towards the property (for example, they can’t be used for improvements but can be used for repairs).
Getting your head around these rules can be difficult, so it’s important you consult with an experienced financial advisor before moving forward.
Know if it’s the Best Use of Your Money
Is a holiday home really the best use of your SMSF? Adding an investment property to your assets is a great idea, but you need to understand the amount of effort, paperwork and costs it’ll incur – especially when there are usually more of these associated with holiday homes.
Location is a crucial aspect of your holiday home, and busier holiday towns are usually much more expensive, meaning you may have to shell out more than you’d initially anticipated. As a result, it’s important you consider all the factors before making a financial decision.
The information and links provided on this website are for general information only and should not be taken as constituting professional advice. This information does not take into account the financial situation or particular needs of individual readers. Before making any decisions about matters discussed on this website, you should consider whether it is suitable for you in light of your own circumstances, and seek appropriate advice.