SMSF
Self Managed Super Fund (SMSF) Investment in NDIS is a hot topic.
Are you considering using your SMSF to purchase a NDIS Investment property?
Let us guide you through the additional considerations when looking to use your SMSF for a NDIS investment.
USING SMSF TO INVEST IN NDIS PROPERTY
The biggest obstacles many SMSF investors face is finding great deals to invest in without being gouged in the process. To date, your choices have been to invest in the share market or set up your own Self Managed Superannuation Fund and invest in assets that your SMSF controls.
The industry super funds do not want you to set up or take control of your super through an SMSF. This is because they make their money by charging you fees. These fees are fixed fees based upon a percentage of your total investment with them.
Up until recently, if you did set up your SMSF you were still limited in what you could invest in. You were not allowed (by law) to have your SMSF develop property, building new high cash flow investment, where you manufacture capital growth onto a property asset.
This is an area which was limited to the industry super funds. Industry super funds and big investment firms kept the best deals secret and exclusive, while keeping us out of their inner circle.
Things have now changed and you can now take charge of your super through your own SMSF, and access all of these investments and the investments from the inner circle. You can now build new investment properties inside your SMSF. This has opened up the opportunity for you to generate the large cash flow, income and the capital growth in property that has been previously only available to the industry funds.
Why invest in SDA property via SMSF?
- SDA Property offers a great investment option for people approaching retirement who are wanting to avoid higher-risk investments such as the stock market, or underperforming retail and industry funds.
- Self Managed Super Fund and NDIS property investment rules permit Australians to invest in NDIS property as part of a diversified asset allocation strategy.
- Using SMSF to buy NDIS property is a great way to invest in residential property achieving very high rental yields with an ethical investment.
Using your SMSF to invest in NDIS Property
Using your Self Managed Super Fund to invest in NDIS property is a mid-to-long term investment that can supplement your super to fund the retirement you want and deserve. Having a self-managed superannuation fund gives you the ability to leverage your super, by borrowing money from a lender, to be able to make more sizable investment purchases, such as NDIS Property.
Our team at NDIS PROPERTY AUSTRALIA are here to help you determine your ideal investment plan based on your current situation and goals. Our consultants will help you understand the current market situation and assist you to find a property that aligns with your goals and will provide you with the best returns on your investment and your future. There are many rules and regulations around buying NDIS property such as the type, style and location of property. Buying NDIS property within SMSF attracts additional considerations.
Ready to talk to us about using your SMSF to buy a NDIS Investment Property?
We recommend you consider the following questions which we will ask you to determine whether an SMSF funded NDIS Property investment is right for you.
1. How much super do you have?
2. Where are your funds sitting at the moment?
3. Is your SMSF setup yet?
4. Do you have a bank account setup for your SMSF if already setup?
5. Are you aware you need a Bare Trust setup once you identify the property you wish to acquire?
6. Which funders have you sourced re SMSF lending?
7. Are you aware of the ‘one part contract’ requirement to purchase an SMSF house package for NDIS?
8. Have you sought financial advice yet for SMSF property investment?
9. Are you fully aware of the NDIS property investment process?
10. How long have you been looking into NDIS?
Frequently Asked Questions
Can a House & Land package be purchased within an SMSF
An SMSF can borrow money to purchase a house and land package as long as it is purchased together in the one transaction (one part contract) as a single acquirable asset where the asset is identified up front as vacant land with a completed house on it.
What is a one part contract?
Buyers sign a single contract with the developer, covering both the land and building component. A deposit is paid upon contract signing, and then the balance of the property price is paid at settlement. Although this is more common among apartment and townhouse purchases, there are some companies that will facilitate a one part contract for House & Land packages.
What are the risks with purchasing a NDIS investment property through an SMSF (Self Managed Super Fund)?
There are a some risks that can accompany using your SMSF (Self-Managed Super Fund) to invest in NDIS property – one being cash flow. Your loan repayments will come from your SMSF. So you need to ensure there is sufficient income into your SMSF (including NDIS Rent from the tenant/s) to make the repayments.
Does an SMSF pay capital gains tax?
An SMSF wholly in the accumulation phase will pay capital gains tax (CGT) on the fund’s annual net capital gain. The net gain is treated as income for tax purposes so it will be taxed at the same rate as other income in the fund – that is, 15%.
What are the ongoing costs when your purchase a property through your SMSF?
There are some ongoing costs that come with using your SMSF to purchase a property. These include:
-Property management fees
-Accounting and auditing costs
-Building insurance, council, and water rates of your investment property
-Body Corp, if relevant
-Business registration of your SMSF with ASIC.
What happens with my SMSF when I retire?
When you retire, you have two options.
1) Continue to receive rent on your investment property as your pension-based income, or
2) Sell the investment property and once you’ve paid any potential remaining debt on the property, use those funds as your retirement income. You need to reach the preservation criteria at the age of 60- 65 to sell the property in order to not pay capital gains tax.
What Are Considerations When Using SMSF To Invest In NDIS Property?
The rules and regulations around using your SMSF to purchase NDIS property can be quite complicated.
In short, using funds from your SMSF to purchase an NDIS investment property is not the same as a regular SMSF property investment loan.
The major consideration is that you can only make the purchase through a single contract. NDIS House & Land packages are normally 2-part contracts. We can refer you to SMSF funders who will do one-part contracts for House & Land packages and we help facilitate this as a property advisor only. We recommend if looking to buy an NDIS property within your SMSF, you have at least 33% of the House & Land contract price, plus additional costs such as stamp duty and holding costs etc. This would amount to over $200,000 as an SMSF balance minimum, ideally at least $300,000.
Major considerations when it comes to determining what properties can be purchased as an investment property through your SMSF are:
Location and Demand
The property you’re considering must be in an area with high rental demand – this is typically considered anywhere within a 50-kilometre radius of an Australian capital city or a 35-kilometre radius of a ‘major’ city. A major city is considered to have a population of 100,000 people or greater. The areas that fall into these categories typically have a vacancy rate of 1% or below, meaning that the rental demand is there for investors to purchase in that area.
The Bank Has To Approve
When purchasing a property through your Self Managed Super Fund, as with any property, you need to talk to the bank. In terms of getting the bank’s approval, the property ideally is as new as possible, because:
The Property Needs To Be Positively Geared
The property should be cash flow positive, meaning that the income from rent should be higher than the outgoings on the property. At the very least, the property should have a neutral cash flow, meaning the incomings and outgoings are relatively even. This is generally not an issue with an NDIS property given the high rental yields.
No personal gain
The last criterion to consider is that you can’t see any personal gain from your investment property. This includes:
-You can’t live in the investment property, or install tenants who are known to you;
-You can’t complete any repair or maintenance work, this can only be done by licensed third-party tradespeople;
-You can’t organise renting the property, this must be done by a licensed third-party property management team – the SDA Provider;
-And finally, you can’t develop or improve the property – you can maintain the property to its current standards, but you can’t undertake any renovations.
How much money to do you need in your SMSF to buy a NDIS House & Land package?
We recommend having around $300,000 in your SMSF. You need to ensure you have a large enough deposit in place to cover initial fees and operating costs involved in the purchase and set up of the NDIS property.
HAVE A QUESTION?
Submit a question below, or call us on 1300254397