Why You Should Invest in Regional Properties Through SMSF
Securing a comfortable retirement is essential for Australia’s aging population. Self-Managed Superannuation Funds (SMSF) are a popular option for boosting the nest egg and taking control of your financial future.
SMSFs are also appealing not only to older Australians who want to make a comfortable retirement. More young people are also using SMSFs to become property investors due to the many benefits they provide, and the dream of property ownership is becoming out of reach due to Australia’s high property costs.
Here, we outline the advantages of SMSFs and why using them to invest in regional properties is a great investment choice. Please note that this information is for educational purposes only and is not financial advice. We recommend seeing a licensed financial adviser or lawyer (or both) for expert advice.
What is an SMSF?
As the name implies, an SMSF is a private superannuation fund you manage yourself. This means the money you would typically put towards an industry or retail super fund is instead put into your SMSF, and you choose what to invest in and what insurance coverage to take.
SMSFs offer people choice and flexibility over their investments, retirement savings, and other benefits.
The benefits of SMSFs
The key benefits of SMSFs include:
• Choice—being able to invest in a broader range of assets, including residential and commercial property.
• Tax advantages—SMSFs benefit from lower tax rates on investment income than traditional super funds. Rental income from investment property in an SMSF is typically taxed at a concessional rate of 15%, which offers significant tax savings.
• Consolidation—you can consolidate your existing super funds into your SMSF to simplify superannuation management.
• Estate planning—you have greater control over how your super benefits are distributed after your death.
How to set up an SMSF
We recommend getting help from a licensed financial adviser with specialist SMSF experience to set up an SMSF. There are eligibility requirements to meet, such as being an Australian resident and not being disqualified by legal issues. There are also trust deeds to draft and compliance and regulations to abide by, which can be complicated. Your SMSF will then need to be registered with the ATO.
Once your SMSF is set up, you will need to consider your investment strategy. Develop a strategy aligned with your goals and risk tolerance. Consider factors like property type, location, and potential rental yields.
Three reasons for investing in regional property through SMSFs
If you already have an SMSF, consider investing in a regional property as part of your strategy.
Benefits of regional property investment include:
1. Affordability—Regional properties are more affordable than capital cities, allowing you to enter the market with a smaller initial investment.
2. Growth potential—Regional areas can experience strong rental yields and capital growth, particularly with increasing demand for lifestyle destinations.
3. Diversification—investing in regional property outside of major cities can diversify your SMSF portfolio, lessening the risk associated with a downturn in any location.
Regional towns like the Hunter Valley and Tamworth offer attractive possibilities for SMSF property investment. The Hunter Valley, for instance, boasts a growing tourism sector, while Tamworth offers a thriving regional economy.
Essential Considerations Before You Dive In
While investing in property through your SMSF offers potential benefits, there are crucial factors you must consider:
• Compliance—SMSFs come with significant compliance obligations. Ensure you understand the ATO regulations and seek professional advice from a qualified financial advisor and lawyer to navigate legal and tax complexities.
• Costs—Setting up and managing an SMSF involves establishment fees, ongoing administration costs, and potentially audit expenses.
• Liquidity—Unlike listed shares, property is not a liquid asset. Selling a property can take time, impacting your access to funds.
• Market Fluctuations—Property markets can fluctuate, and there's always a risk of vacancy periods affecting rental income.
RPN can assist you with finding suitable regional property investment
We have a portfolio of regional properties in Tamworth, Dubbo, Muswellbrook, Tahmoor, and Lochinvar. All offer long-term steady growth at attractive price points and low vacancy rates and are great for first-time and seasoned property investors. Take a look at the properties available and contact us for an inspection.
The key takeaway
SMSFs can be a powerful tool for property investment. They offer greater control and investment flexibility, allowing you to explore strategic property investment opportunities. Investing in regional towns can be particularly attractive, offering affordability, growth potential, and diversification benefits. However, it's vital to understand the complexities of SMSFs, the ongoing costs involved, and potential market risks. Consulting with qualified professionals can help you determine if investing in a regional property through an SMSF is right for you.
When you are ready to take the plunge, call us, and we can help you get started on your property investment journey!
