How to Buy a Home With Super
Tuesday, October 22, 2024
In this 5 min article you’ll learn;
- Two Government approved ways you can use super to buy your own home
- Where to find help to get started
- Tips for Australians 18-40 saving for a home with super
- Tips for Australians 40+ to save for a home by retirement
- When (and why) you can't use super to buy a home
Buying a House or Home with Super:
A Beginner’s Guide
There are no shortcuts to buying a home, but super could be a tool to help you get there faster or to provide a home in retirement when there doesn't seem to be any other way.
This article is not financial advice, and you should always use qualified professionals when considering the use of your super. The purpose for this article is to inform you of options that you may not be aware of.
We hope it can help you!
Let’s dive into both options.
Option 1: Use Super to Buy Your First Home
The Australian Government’s First Home Super Saver Scheme (FHSSS) is designed to help first-time homebuyers by allowing them to save for a home deposit through their superannuation.
In short, you can make additional super contributions that can later be withdrawn from your super as a home deposit.
Here’s how it works:
- Tax Savings: Instead of paying your usual income tax rate, you only pay 15% tax on your additional voluntary super contributions. For most people, this is much lower than their income tax, meaning you can save more, faster.
- Contribution Limits: You can contribute up to $15,000 per year (and a total of $50,000 across multiple years). These voluntary contributions, along with any earnings they generate, can later be withdrawn when you're ready to buy a home.
- Accessing Your Funds: Once you're ready to purchase a home, you can request the release of your additional contrubitions. You must do this before ownership of any property transfers to you.
- Boost Your Super: While you're saving for a house deposit, your contributions are also being invested. This will also help your super grow for retirement.
This option is ideal for younger people or anyone looking to save for a first home. If you have a partner also making contributions, you might be able to save faster.
Not a first home buyer? Check the Scheme rules for people in hardship.
The Able Investor can’t help you with this option, but it can be a far more effective way to save for a home deposit because of tax savings and the ability to lock away money for a home deposit.
If you speak to your accountant or HR manager at work, it can also be automatically deducted from your pay cycles. You might not even miss it once auto payments are set up.
It's important to contact the Government to become clear on the rules of this scheme. You can learn more about this opportunity through the Government's FHSSS website.
Option 2: Use Your Super to Buy an Investment Property that you could retire into
There is another way to access your super (all of it, not just your extra contributions) to enter the property market: you may be able to use your super to buy an investment property. Then you might set a goal to move in at retirement, or at sell the investment property to buy your dream retirement home.
Here’s what you need to know:
How to Buy Property with Your Super:
To purchase an investment property, you’ll need to set up a Self-Managed Super Fund (SMSF) and roll your existing super into it to be used for property and traditional investment.
This gives you control over your super investments, including property, but it requires a team of professionals to help:
- SMSF Accountant & Administrator: To set up and manage your SMSF correctly
- Solicitor: To handle the conveyancing involved when buying property with your super
- Mortgage Broker: Specialised in SMSF lending. (not all banks offer SMSF loans)
- Property Expert: To source a property that meets the SMSF regulations and your performance goals
- Rental Agent: To manage the property and tenants
While there’s a bit of setup involved, the right partners make it much easier.
Here’s the key: you can’t live in it, holiday there, or rent it to family or friends. The property must be solely for investment until you retire.
While this isn’t an instant solution, using super to secure a retirement property could save you tens of thousands in rent every year when you retire. Because this is a super fund investment, it also won't affect your personal finances or your ability to use first home owner grants if that options becomes available.
"Five months ago I thought Mitch was too good to be true. I thought, I'll give this bloke 10 mins before I shut the laptop down.
Now I have a unit in Footscray and haven't spent a cent on it. Thanks heaps mate, my Christmas is going to be a huge one.
It's amazing knowing whatever happens in 15 years time, I'll always have a bed to sleep in. Thanks heaps."
Matthew, Melbourne
Want to see if you're eligible for property investment with your super? Click below
Pro's & Cons
Let’s take a look at some benefits, rules and risks
Benefits of Property Investment Through SMSF:
- Leveraging Your Super: One of the biggest advantages of using super to buy property is leverage. Let's say you have $300,000 in super. Instead of only growing your super based on that amount, you can use it as a deposit to buy a property worth, say, $600,000. The growth of your investment is now based on the larger value of the property.
- Pay Off the Mortgage Faster: Rent from tenants can be used to pay down the mortgage, along with ongoing super contributions. This means you may be able to pay off the property faster than if you were solely relying on rental income outside of super. 10-15 years is quite achievable with the right approach.
- Long-Term Tax Benefits: When you retire, if you still hold the property in your super, there are tax perks. For example, you can sell the property without paying capital gains tax, or if you keep it, any rental income could be tax-free once you enter the retirement phase.
Risks and Rules:
- Personal Use Restrictions: You can't use the property to live in, holiday for yourself or your friends and family until you retire. If you break this rule, the penalties are severe. You could lose both the property and a large portion of your super. The ATO is very good at finding out if you are breaking the rules.
- Setup: The SMSF process involves multiple professionals and a higher level of management than a typical retail or industry fund. Pulling together these professionals on your own can be hit and miss. You may not get the service you need to operate your investment properly.
The Able Investor introduces you to a team of experienced professionals that work together to simplify and streamline the set up, costs and ongoing management of property investment in super.
What Can You Do with Your Investment Property at Retirement?
Once you retire, you have several options with your investment property:
- 1. Sell the Property: If you decide to sell, you won't pay capital gains tax*, meaning more money stays in your pocket. You can then use the money from the sale as you would with any super, If you have enough, you might use it to purchase your dream retirement home.
- 2. Live in the Property: After retirement, you can transfer the property out of the super fund and into your own name (CGT free*), allowing you to live there without the restrictions of the SMSF rules.
- 3. Keep the Property: If you prefer, you can continue renting it out, and the rental income could be tax-free during retirement.
* Always use a qualified accountant when considering changes to super and to access available tax benefits.
What Do You Choose For Your Super?
However you use your super, it’s crucial to do your homework, ask questions from qualified and experienced professionals and plan carefully. Whether you choose to invest in property or stick to a traditional super fund, what matters most is that your super is working towards a retirement that you can be happy with.
Buying property through your super might seem complicated, but with the right team of professionals, it can be a smart and rewarding investment.
If you’d like to know more about using super to invest in property, our form lets you know if you’re eligible. Click below to get started.
Additional reading
- Thoughts on the First Home Super Saver Scheme
- Benefits of Investing towards a retirement home
- Why you can't use super to buy a home before retirement
For many Australians without a home, saving for a deposit or paying off a mortgage before retirement can seem daunting. While superannuation isn't a shortcut to homeownership, it does offer opportunities that could help you reach your goal.
For Younger Australians (Including 18-Year-Olds)
If you’re still far from retirement, you could make voluntary contributions to your super as a smart way to save for a home deposit. By committing to this strategy, your savings are locked away and can only be used for that purpose, which means they are protected from being spent on other life events.
One key benefit is that you can save faster through super, thanks to lower tax rates on super contributions compared to regular savings. Over time, this can make a significant difference, helping you build your deposit more efficiently.
While we at The Able Investor or our partners don't assist directly with the Government’s First Home Super Saver (FHSS) scheme, we believe it's a great initiative.
Click here to visit the FHSS website for more information
For Those Closer to Retirement
If you're approaching retirement, while you can’t use your super to buy a home right now, you may be eligible to invest in property through your super so you can work towards a home in retirement. Here are a few points to consider:
- Property ownership: Once you own a property in your super fund - you're in the property market and can no longer be priced out of buying. You'll be riding the price increases with the rest of the market.
- More options: Upon retirement, you can either sell the investment property to buy your dream home or move into it.
- Mortgage free ownership goal: Rental income, along with your super contributions, could help pay off the mortgage in 10-15 years. Hopefully before you retire!
- Lower daily stress: You might find peace of mind knowing that you'll have a home in retirement
- No effect on personal finances: Investment property in a super fund does not rule you out from getting a first home owner benefit if that opportunity comes. Your super is separate to your personal finances.
Additionally, by increasing your super contributions, you could pay off the loan faster, giving you more time to grow your super balance beyond the property itself. Rent from the property can also boost your super savings until you retire.
Why Can’t Super Be Used to Buy a Home Today?
We understand the frustration of not being able to use super to purchase a home right now. However, unless the Australian Government makes significant changes, this option remains unavailable.
The superannuation system was designed to reduce financial pressure on the government and taxpayers. The Age Pension, funded by taxpayers, supports retired Australians. Superannuation serves as an additional support system, lessening the strain on the Age Pension.
Allowing super to be used for home purchases would increase reliance on the Age Pension, leading to higher taxes for working Australians. Additionally, using super for a home doesn't guarantee long-term financial security, as divorce, poor business decisions, or financial mismanagement could result in the loss of that property.
While super is technically your money, the Government laws require contributions come from your employer in addition to your pay (not from your pay). They are meant to be a long-term investment for your retirement.
The purpose of super is to provide financial stability later in life, and unless the rules change, that’s what we have to work with. Fortunately, many Australians are already leveraging these opportunities to improve their retirement. This information is here to help you work out if that choice is something you'd like to do.
If you’d like to know more about using super to invest in property, our form lets you know if you’re eligible. Click below to get started.
- * This post is for educational purposes only and should not be relied upon for financial advice
- * Property in a super fund can only be used for investment purposes until retirement
- * Neither you or your family or any related party can live or holiday in an investment property within your super fund
- * When considering set up of an SMSF, it's best to engage an Accountant that specialises in SMSFs
Articles by our team and partners
The Able Investor provides educational information on property investment within super funds.
We connect people with SMSF Accountants, Mortgage Brokers, Real Estate Agents, Property Manager & Solicitors who specialise in helping you add property to Super
Can you buy property in your super?
Our quick calculator works to let you know if you have sufficient super, income and time to retirement to qualify to have property in your super. Click here to find out now.
Click here to see if you qualify to buy a property with your super:
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