How to use your super for real estate investment

To enter the real estate investment scene, it takes more than skill, experience and education – you also need start-up funds. If you don't have enough savings, did you know that your retirement pension could be the key to entering the real estate market?

Before we explain how you could use your super to invest, let's define what the retirement pension is and what it is supposed to do:

The retirement pension is money set aside by your employer during your working life for your retirement. It is sent to a managed fund where your money is pooled with the money of other members, then invested on your behalf by professional investment managers, according to the Australian Securities and Investments Commission (ASIC).

Usually, there are three types of super contributions: employer contributions, personal contributions and government contributions.

Super employer contributions. In this type of contribution, your employer pays an amount equal to 9.5% of your salary to your super fund account. This is in addition to your salary. These contributions accumulate and are invested by your super fund so that you earn returns on investment.

If you are self-employed, you are responsible for making your own contributions, but they are tax deductible. If you already have a great fund for being employed previously, check with your fund that you can continue to make personal contributions while being independent.

For more information on super contributions for the self-employed, visit the ASIC website.

Super personal contributions. You can make additional contributions by:

Salary sacrificed. Your employer can direct part of your tax to your super. This amount will be deducted by your employer and sent to the fund with your employer's contributions.
Personal contributions from your salary. Ask your employer to make personal contributions with the money you paid on tax. If you earn less income, you are entitled to government contributions.
Bank transfer. You can transfer some of your money to your super account using BPay or direct deposit.
Super transfer. Transfer all or part of your super from another fund to your main super account.

Government contributions. You can receive a government contribution if you put your own after-tax money on super. However, it depends on how much money you earn. Low-income people can receive up to $ 500 more by making after-tax personal contributions.

Where does your super money go

The money you put in your super fund account is invested by your super fund. Most super funds offer a variety of investment options, including pre-mixed options containing a mix of different asset classes and sector options like cash, real estate and stocks.

Your feedback can affect the speed at which your super pushes. It is essential to choose an investment option that fits your investment schedule.

If you retire and have reached your retention age – the age at which you can withdraw your super, you may be able to access your super.

Here is where you can access your super, depending on your date of birth:

Date of birth

Age of conservation

Before July 1, 1960


July 1, 1960 – June 30, 1961


July 1, 1961 – June 30, 1962


July 1, 1961 – June 30, 1962


July 1, 1963 – June 30, 1964


From July 1, 1964


For more information on accessing your super, visit this resource.

Self-managed super fund and real estate investment

A super self-managed fund (SMSF) is a retirement savings account that you manage yourself, instead of being managed by a super provider. This can allow you to be more involved in what you are investing in. This can also give you tax benefits, because retirement income is taxed at 15% and capital gains from retirement pension are taxed at 10%.

You can use SMSF for real estate investment. Real estate investment via SMSF gives back control to consumers and potentially increases their retirement funds beyond the projections needed, according to Jason Paetow, managing director of AllianceCorp.

Interested investors may be able to maximize their returns by sacrificing their wages. The combination of super with a family member can also increase their purchasing power.

"When purchasing a property through an SMSF, individuals can obtain financing of up to 70% of the value of the property, provided that they meet the criteria of the lender. That means they only have to invest a small amount of their funds in the property, "said Paetow.

Purchase of a property via SMSF

Some of the steps you may want to consider taking when purchasing an investment property using your super self-directed fund are as follows:

Establish SMSF trust and trustworthy act
Establishment of the corporate fund fiduciary structure
Fund registration with the Australian Taxation Office (ATO) – provide TFN and ABN
Configuration of the fund bank account
Transfer of super funds or existing balances
Ensure that your employer contributions are transferred to SMSF
Organize the messaging provider ATO SMSF so that the fund can receive contributions from the employer
Establish a Limited Recourse Loan Agreement (LRBA) for Direct Property
Investment – provide a statement of advice (SOA)

Rules and costs

Here are some rules you should know before using your SMSF for real estate investment:

The property cannot be your main residence
The purchase of land for the development of a house and a lot of land, as well as traditional development – where you first settle on the land – are not allowed
The property must not be acquired from a related party of a member
The property must meet the "single purpose criterion" of providing only pension benefits to members of the fund

Buying a property for an investment using your SMSF can also cost you fees. Some of them are:

The initial costs
Legal fees
Consulting fees
Stamp duty
Current property management fees
Bank charges

Keep in mind that, as with other real estate investing strategies, using your SMSF for real estate investing involves certain risks such as negative cash flow, a lack of portfolio diversity, underperforming properties and financing costs.

"As with any investment, fluctuations and their impact on after-tax cash flow must all be taken into account. Additionally, not everyone has experience in finance and taxation, so the administration of creating an SMSF and the legal aspects of compliance can be difficult. "said Paetow.

Ask an expert for advice on using your SMSF for real estate investment, he may be able to guide you on the right path to maximize your returns by using your fund.

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