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Buying property with an SMSF loan: What do you need to know?

Have you ever considered building wealth for your retirement with a self-managed super fund (SMSF)? It's a complex system that won't work for everyone, but if you have the required capital and the time to put into it, it could pay off.

You must consider whether it's the absolute best decision for your financial goals before committing to any purchase.

Buying a property with an SMSF loan from Mortgageport can make the investment easier for you. Of course, you must consider whether it's the absolute best decision for your financial goals before committing to any purchase. There are plenty of rules you need to abide by to avoid tax penalties on your SMSF property as well – knowing and sticking to these will help to keep your investment financially viable.

What are the rules surrounding an SMSF property?

For a start, any SMSF property must meet the 'sole purpose test', which means it only provides retirement benefits to members of your SMSF board. Other SMSF regulations about how to use your SMSF property are as follows:

The property must not be purchased from a family member of anyone on the SMSF board.
The property must not be lived in by a member of the board.
The property cannot be rented out by a member of the board, or any related parties (including family).

Everyone on your SMSF board must know the rules and abide by them (if there is more than one person on the board). Holding regular meetings can ensure that the investment is being used in a legal way, and annual audits ensure you are complying with tax rules.

SMSFs are excellent ways to have more control over your retirement investments, but you must have an appropriate amount of capital to make it worthwhile. NAB recommends at least $350,000 as a minimum – this can be spread over a number of people, however.

A deposit for an SMSF home can be split over all of the people on your board.

How can Mortgageport help you to buy an SMSF property?

Without the minimum recommended capital to start your SMSF investment and make it financially viable, an SMSF loan could be the right option. If an SMSF is not the right investment decision for you in the first place, an SMSF loan will not be suitable.

If you are starting your SMSF investment scheme earlier, you will have more time to make capital gains, thus you may not need as much upfront capital. That's where an SMSF loan from Mortgageport can help – for more information, make sure you get in touch today.

Why should you buy property in your 20s despite rising prices?

Are you currently looking at the property market, and feeling very unsure that you'll ever be able to buy your own home? We don't blame you, with places like Sydney showing median dwelling values over the $1 million mark, as of January this year according to CoreLogic RP Data. If you look around, though, you'll find a suitable place to buy on an appropriate budget for someone in their 20s.

That's why the Australian Bureau of Statistics reported a drop in first-time buyers in July 2016, as stated in an ABC News article from October 2016. Up to 14.1 per cent of the buying market was predicted to be first-timer buyers, but the real figure was only 13.2 per cent.

However, there are affordable pockets for all buyers – no matter if it's your first time or your fifth. Buying a property in your 20s is a great way to set yourself up for a successful financial future, but it will take some planning, and a suitable first-home buyer loan.

How young should you start preparing to buy a property? We think your 20s is a great time.

How can you buy a home in your 20s?

It seems unfathomable to buy a home so young, with your current job (and potential entry-level salary) but it can be done. It requires dedication, careful planning, and a great mortgage provider. Buying your first home before your thirtieth birthday means you've got a whole lot of time to pay off the mortgage, for one thing, so you shouldn't stress about your finances.

That being said, you will need to come up with an initial deposit. If you're buying by yourself, you will need to save for a number of years, most likely, and be strict with yourself about not spending unnecessarily. Say the home you're buying costs $400,000 and you need 20 per cent of that for a deposit. You'll need $80,000, which is just over the average salary in Australia, according to the Australian Bureau of Statistics. Even if you put aside a full 50 per cent of your earnings, it would take two years to get enough for a deposit, and many people won't be earning that much. The sooner you start saving, the less your finances will be affected by your home purchase.

Why should you buy early in your life?

It's not a great idea to focus on expensive suburbs when you're buying your first home, because you'll need a larger deposit.

Buying soon is a great move, because the real estate market in Australia keeps getting more expensive. Figures from the UBS Global Real Estate Bubble Index from 2016 indicate that the median price of a house in Sydney has increased by 45 per cent since June 2012. Over the last year, CoreLogic reports that it has increased by 16.59 per cent!

It's not a great idea to focus on expensive suburbs when you're buying your first home, because you'll need a larger deposit to access a suitable first-time buyer mortgage, and your monthly repayments will be greater too. Find a house, or apartment, in an affordable suburb that you think feels like home, and put in an offer (after you've saved a deposit and have mortgage pre-approval, of course).

Buying in your 20s means you'll have financial security later in life, and that you won't be paying higher prices for the property you want when the markets rise even more! Get in touch with Mortgageport today to discuss your home loan options.

Where are the best places to invest in property in Australia?

Thinking about buying an investment home, but not sure where the best places to look are? Your specific goals will determine the most appropriate suburbs or regions to concentrate your search, whether you're looking for capital gains over a number of years, or you want to increase your passive income with sound rental yield. You might even be looking at an investment property for an SMSF, and your structure for this might change what the best strategy for your investment is.

Is Sydney among the best places to invest in property?

Investing for capital gains means you should look to growth suburbs for options – the success of your investment will only be realised when, and if, you sell the property for a profit. Investing with rental yield in mind means not overspending on a property that won't have great returns for weekly rent costs, and buying in an area that will be popular among tenants for years to come. An SMSF investment might take either of these strategies on board.

So, what are you investing for, and where should you look around Australia for the best spot?

On the (treasure) hunt for capital gains

Buying for capital gains means looking at suburbs that are going to show strong growth over a number of years. You'll buy at around the current median price (hopefully), and sell down the track when the median price has increased. The higher the increase, the better your profits.

These are the current strongest growth suburbs around Australia:

Clareville, NSW – 49.79 per cent growth in the past year.
Bodalla, NSW – 49.39 per cent growth.
Red Hill, ACT – 49.21 per cent growth.

The avid Australian geographer will recognise that the only suburb in that list anywhere near a major city is Red Hill, which has a median house price of $1,240,000, according to Smart Property Investment (SPI). If you can't afford inner-city prices, you'll have more success looking in the major regional centres for capital gains nearing 50 per cent year-on-year.

Boosting your passive income with rental yield

Rental yield is the amount of money you'll receive from a year of a tenant paying the average weekly rent price in a suburb.

Rental yield is the amount of money you'll receive from a year of a tenant paying the average weekly rent price in a suburb, as a percentage of the cost of the home as the median value. The higher the rental yield, the more money you'll be getting from tenants.

Here are the best suburbs for rental yield in Australia, according to SPI:

Katherine East, NT – 21.09 per cent.
Loch Sport, VIC – 20.49 per cent.
Collinsville, QLD – 18.91 per cent.

The median house price in Katherine East is just $127,000! You could buy here and rent it out for a great boost to your income with very little initial expense, compared to buying in the rest of the country.

Whatever you're buying for, make sure you consider all of the options, and don't just settle for something nearby, or cheap. It might not perform as you'd expect. For help getting the appropriate investment property loan, get in touch with Mortgageport today.

Thinking strategically about your mortgage

With a lot of mortgage promotion and comment focused on interest rates and fees, many borrowers are convinced that the cost of the mortgage is the most important factor they need to look at when choosing the right home loan.

The interest rate is really important but if not backed up with the right lending strategy it can cause long term and in some cases irreversible problems.

Confused about how to get a tax deduction on your Mortgage?

There is a lot of information available for people looking to research mortgages on the Internet and most of it has been designed by marketing people to advertise their business. It’s called Search Engine Marketing (SEM) and comes in many forms from lenders promoting themselves directly to borrowers through to perceived independent Interest rate comparison sites who earn commission when you click to view a lenders products or when their marketing results in you taking up one of their advertised lenders home loans.

The problem with almost all SEM is that it needs to be effective for the mortgage promoter and they focus on low interest rates because that sells, because that’s what most borrowers believe is best for them.

The problem with just looking at mortgage rates is that mortgage rates always change over the life of the loan, and it’s a flawed assumption to think just because a rate is the lowest today that it will continue to be the lowest over the next 30 years and more importantly, just looking at the product doesn’t take into account your current circumstances.

In this the first of a series of videos we help explain what makes interest on your home loan tax deductible, which if structured correctly will keep you out of trouble with the tax office and save you more money than just a low interest rate.

If you’d like to find out more about structuring your home loan have a chat to one of our experts.

Why do your mortgage rates matter?

Do you know how important your mortgage rate, otherwise known as your interest rate, is? Before you take out a home loan, you should consider all the options on the market. If you choose a mortgage interest rate that's too high, you could be paying off your loan for a lot longer than you initially expected.

Shopping around for a home loan can help you get a good picture of what you should expect to pay each month, as well as how long you'll be paying that for. Mortgageport has a wide range of competitive mortgage options for people at every stage, whether you're investing, buying a second home, or you're a first-time buyer.

What does the interest rate mean for your repayments?

Home loan interest rates affect the total amount you pay over the number of years it takes you to pay the full amount. Take a $400,000 loan, for example. If you didn't pay any interest on it, you'd be paying back only $400,000, and if you lock into a 25 year deal, your monthly repayments will be $1,333 for the full 25 years.

Home loan interest rates affect the total amount you pay over the number of years it takes you to pay the full amount.

However, if you took out the same home loan with an interest rate of 5.7 per cent, it means you'll be paying an extra 5.7 per cent of the total amount each year. If you pay your home loan off faster, you won't pay as much, although some providers don't allow you to pay the total amount faster without accruing the interest.

Therefore, a 5.7 per cent interest rate on a $400,000 home loan would put your monthly repayments at $2,500 for 25 years and 2 months, according to Finder. For most people, $1,200 a month isn't to be sniffed at – thus, home loan interest rates are an important factor when choosing your mortgage.

Are there different kinds of mortgage?

Depending on your situation, you can choose a variable rate, fixed rate, partially fixed rate or introductory rate mortgage. Variable rates mean the banks can change your interest rates, which is great if they're only going to lower the rates over time. However, they could also raise them. Fixed rate mortgages are good options, but you don't get the benefits if interest rates drop. Introductory rates can seem great with a low initial interest rate, however the interest rate after 1 or 2 years can mean you end up paying far more over the length of your mortgage. Choose wisely!

What could changing interest rates do to your mortgage repayments?

Before you choose a home loan, consider the mortgage interest rate you're opting for. Think about how long you want to be paying off your home loan and what you want your monthly repayments to be – it's different for everybody. To learn more about your options, and what the best plan is for you, chat to the friendly team at Mortgageport today.

Buying property with an SMSF loan: What do you need to know?

Why should you buy property in your 20s despite rising prices?

Where are the best places to invest in property in Australia?

Thinking strategically about your mortgage

Confused about how to get a tax deduction on your Mortgage?

Why do your mortgage rates matter?

Contact Us

1300 786 908

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Confused about how to get a tax deduction on your Mortgage?

Contact Us 1300 786 908

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Contact Us

1300 786 908