How to use a self-managed super fund to borrow money for property investment and pay no capital gains tax after 60. The video explains the mechanics of refinancing your super into a fund you control and the risks involved.
I've had a lot of clients lately ask me about self managed super funds or SMSFs. So what a self managed super fund is, it's really where you're refinancing your super away from your current fund, whether it be Australian super or HostPlus etc. And you're putting into a fund which you control. A self managed super fund is simply an investment company which you the director of. Your job as the director of your investment company is to grow that fund to the best of your ability, as long as you do not benefit personally from it before you retire. The beautiful part about a self managed super fund is you can actually leverage that. And what that really means is let's say you've got 300 grand in super, put that into a self managed super fund investment company and then your job is to grow that 300 grand as you see fit. So what a lot of people like the idea of is using that SU fund to buy property, residential or commercial. The banks have really tightened the screws on their lending criteria at the moment. So if you have a $300,000 super fund balance, you set up a self managed super fund. The bank will then lend your super fund money to acquire property. As an example, you buy a $500,000 property in the name of the super fund. The bank will lend you about 70% of the value of that. So it means you've got to put down $150,000 deposit and the bank will lend you the other $350,000. The rent goes into the super fund every single month and the super fund pays the mortgage every single month. What you really want to be doing is using the leftover cash in your self managed super fund to be sitting in an offset account. So it offsets the interest on your investment property. So rather than paying interest on the investment property at $350,000, if you had another $150,000 in cash, you put that into the offset account and you're actually going to be paying interest on $200,000 in your super fund and the rent is going to be coming through each and every month as per normal. The best part about that is if you can get that super fund to pay that loan off by the time you retire, you can have this asset which you bought at 500,000, but I assume it may be now 600,000 or 700,000 by the time you retire. If you sell that asset for $600,000 when you retire and you've paid it off, you've now got $600,000 which you can put into your super fund. Because properties owned by super fund that are sold after the age of 60 have no capital gains tax. That's huge. No capital gains tax on your investment property is an amazing opportunity. So that's some of the benefits of owning property in your super fund. And the other factor there is leverage. If you have a $300,000 super fund and you get a 10% return on it, you've made 30 grand. If you get a $300,000 super fund, use 150 grand of that to buy a property worth 500,000. And your $500,000 property does 10%. You've now made 50,000. See how you've leveraged your super. Leverage is great IF over a 10 year period. Leverage over a one or two or three year period is very, very dangerous there. So the good thing about super, it's a long term play. And so you are able to buy properties with a super fund and when you sell them after the age of 60, they are capital gains tax exempt, which is phenomenal. And you've got the ability to leverage your super. You can get the actual gain on the asset value of 500,000 rather than on your deposit, which was 150,000. So leverage, no capital gains tax. They're two really, really positive things about owning a property in a self managed super fund.
