Investing in property through your Self-Managed Super Fund (SMSF) can be a powerful wealth-building strategy. However, before you embark on this journey, it’s crucial to understand how much superannuation you need to get started. This article explores the key factors that determine the required super deposit and provides a handy calculator to help you estimate your specific needs.
Key Factors Influencing Required Super Deposit
The amount of super you need to buy an investment property through your SMSF depends on several key factors:
- Property Price: The higher the property price, the larger the deposit you’ll need. Typically, banks will lend up to 80% of the property value, meaning you’ll need a 20% deposit from your super fund.
- Current Super Balance: The amount of money you currently have in your super fund plays a significant role in determining whether you have enough for a deposit.
- Co-Investor Super Balance: If you’re purchasing the property with a co-investor, their super balance will also contribute to the total deposit available.
- Loan-to-Value Ratio (LVR): Most lenders require an LVR of 70-80% for SMSF property loans. This means you’ll need a deposit of 20-30% of the property value.
- Additional Costs: Apart from the deposit, you’ll also need to factor in additional costs such as stamp duty, legal fees, and conveyancing fees. These costs typically amount to around 5% of the property value.
Using the SMSF Super Deposit Calculator
To estimate the super deposit you need for your desired property, you can use the handy SMSF Super Deposit Calculator provided by Your Investment Property Magazine (YIP). Here’s how it works:
- Enter the Property Price: Enter the price of the property you’re interested in purchasing.
- Enter Your Current Super Balance: Enter the total amount of money currently in your super fund.
- Enter Your Co-Investor’s Super Balance (Optional): If you’re purchasing the property with a co-investor, enter their super balance as well.
- Click “Calculate Now”: The calculator will then estimate the required super deposit based on the information you provided.
Interpreting the Results
The calculator will provide you with two key results:
- Deposit Required: This is the minimum amount of super you need to have available to meet the 20% deposit requirement for the property.
- Current Deposit: This is the total amount of super you currently have in your fund (including your co-investor’s balance, if applicable).
Based on these results, you can determine whether you have enough super saved to invest in the property or if you need to accumulate more funds before proceeding.
Example Scenario
Let’s consider an example to illustrate how the calculator works. Suppose James and his wife Sarah want to purchase a $400,000 house in Kiama using their SMSF. James has $25,000 in his super balance, while Sarah has $15,000.
Using the SMSF Super Deposit Calculator, they enter the following information:
- Property Price: $400,000
- Current Super Balance: $25,000 (James) + $15,000 (Sarah) = $40,000
After clicking “Calculate Now,” the results show:
- Deposit Required: $80,000 (20% of $400,000)
- Current Deposit: $40,000
This indicates that James and Sarah currently have half the amount needed to invest in the $400,000 property. They would need to accumulate an additional $40,000 in their super fund to meet the deposit requirement.
Investing in property through your SMSF can be a rewarding experience, but it’s essential to plan carefully and ensure you have sufficient funds available. The SMSF Super Deposit Calculator is a valuable tool to help you estimate your required super deposit and make informed decisions about your property investment journey.
How much super do I need to buy an investment property?
A Self Managed Superannuation Fund (SMSF) is necessary if you want to use your superannuation to purchase an investment property. First, let’s review some fundamental information regarding this self-managed retirement savings investment:
- Aim to have a minimum of $150,000 in the super fund.
- you can have up to 6 members in the SMSF
- You are not allowed to occupy the property with your family or any related party.
- A residential property that you already own cannot be transferred into your super fund.
- your super fund can borrow money to purchase a property
- You will be legally bound to fulfill certain duties as a director of your own super fund.
- You can’t solve every issue with a self-managed super fund.
This is an area of personal finance we strongly recommend seeking financial advice for, as the details can be complex. Read on for more information, and please reach out to our team to connect you with the professionals you need for your situation.
How much super do I need to buy an investment property?
In the event that you had sufficient funds in your SMSF, you could use the fund to purchase a property outright. If not, the SMSF would need to borrow money, a process known as limited recourse borrowing.
It differs from purchasing a residence or investment property under your own name. An additional reason that you might require a larger account balance for your SMF is that, in order to obtain a loan in the name of your SMF, you will require a deposit of 2020 percent. In addition, a lender will require the least amount of liquidity in the loan amount of 2010% in cash.
Let’s take a look at the numbers to see how much money you need in your super to purchase an investment property:
- Property price of $600,000% with a loan amount of $480,000 (80%) and a required deposit of $120,000 (20%) and $48,000 (liquidity) in the bank account
How Much Money Do You Need In Your SMSF to Invest in Property
FAQ
What is the minimum balance required for SMSF?
What is the average value of SMSF?
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2020–21
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2018–19
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Average assets per member
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$790,808
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$690,656
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Median assets per member
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$472,824
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$404,632
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Average assets per SMSF
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$1,472,106
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$1,296,648
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Median assets per SMSF
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$834,514
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$718,540
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How much money can I withdraw from my SMSF?
How much deposit is required for SMSF property?
Should you own a property through a SMSF?
There are significant advantages to owning a property through a SMSF. First, your super fund will be taxed at 15 per cent, which is considerably lower than most people’s personal tax rates. Second, your capital gains tax will also be discounted.
Should I buy real estate through my SMSF?
Another important factor to consider when purchasing real estate through your SMSF is the borrowing limits for superannuation funds. If you intend on using leverage (or borrowed money) to finance the purchase of an investment property, be aware that there are strict rules in place regarding how much debt your fund can incur.
Can a SMSF buy a property in Australia?
SMSFs can be used to buy investment properties and have become an increasingly popular choice for Australians in recent years. A self-managed fund can even use borrowed monies to purchase a single asset, or a collection of identical assets that have the same market value.
How does a SMSF tax a commercial property?
Once the SMSF is registered for GST, it can claim 100% of GST on any expenses associated with the commercial property. Once the property begins to produce a rental income, it will be taxed at 15%. If the property is sold (after owning it for more than 12 months), 10% capital gains tax will apply.