Buying a home is still an expensive goal for most Australians. But with the available schemes around, you may inch closer to securing your keys today.
Here are 2 ways you can use your superannuation to buy a property in Australia.
Can you use super to buy a house?
While superannuation was originally designed to help you save for your retirement, you can use your super to buy a property in Australia.
First, you may use your self-managed super funds (SMSF) to buy an investment property but not a place to live in. An SMSF is a way to save for your retirement. Since you manage this super fund yourself, you get to choose and control where your retirement savings go.
Another way to use your super is through the First Home Super Saver scheme (FHSS). Through this scheme, you can use your superannuation to save for a deposit as long as you’re a first-home buyer.
How to buy a house with your super?
Our managing director, Joseph Daoud, was recently featured in news.com.au’s article “Can you buy a house with superannuation?” where he shared his expert insights on the pros and cons of using your SMSF and the FHSS to buy a property in Australia. Continue reading to find out which one works best for you.
Using self-managed super funds (SMSF) to buy a house
When using your SMSF, there are certain restrictions your property should adhere to. For example, you can’t buy from any fund member or related parties. Also, the property shouldn’t be lived in or rented by any fund member or their related parties.
Daoud also shows how your borrowing capacity can be a benefit: “Let’s say you have $250,000 in your superannuation and want to use $150,000 as a deposit for a $500,000 property, you can borrow the remaining $350,000 so long as the rental income and super contributions can continue to service the loan.”
Pros of using your SMSF
Aside from using a part of your SMSF as a deposit, using your SMSF also comes with other perks. “This can come with several tax benefits, including no need to pay capital gains tax, possible tax deductible loan repayments, a capped maximum tax rate of 15 per cent and diversification of your superannuation portfolio,” he shares.
Cons of using your SMSF
But just like any other financial decision, the restrictions on using your SMSF to buy an investment property can come with some disadvantages.
Daoud points out that “investment properties, like apartments can often come with high strata which can cause issues in regards to your superannuation contributions and another issue that can arise is liquidity: [property] can be harder to sell than shares, or other assets.”
Using the First Home Super Saver scheme (FHSS) to buy a house
If you’re a first-home buyer, another option you have is to use the FHSS scheme. This scheme allows you to make voluntary contributions and lets you save for a deposit faster in your superannuation account.
Under this scheme, you can have a maximum of $15,000 contribution per financial year. Then, when you’re ready to make a deposit for your first home, you can have a maximum of $50,000 releasable amount.
Pros of using the FHSS scheme
Savings discipline, potential tax concessions and protected savings are all benefits of the FHSS scheme that Daoud lists.
Cons of using the FHSS scheme
Despite the possible advantages of the scheme, its drawbacks include the lack of options you may have in capital cities. “The maximum amount you can contribute to the scheme is $50,000, and as we all know, it’s quite difficult to be able to purchase a property in Sydney [and other capital cities] with only a $50,000 deposit,” he says.
SMSF or FHSS?
Whether you use your SMSF or the FHSS depends on your financial situation and goals. Get in touch with our brokers, and get FREE expert help to know which option is best for your circumstance.
If using your super isn’t an option, you may be interested in other schemes that can help you buy a property:
- Low deposit home loans
- Family Home Guarantee scheme for single parents
- First Home Owner’s Grant
- Nurse home loans