How Much Super Do I Need To Buy Investment Property? The Secret to a Super Investment Property Purchase
Do you want to buy your investment property but find the prices of homes in your area too high? If so, you’re not alone!
To take advantage of investment properties’ opportunities, you may need to tap into your superannuation (or your parents’ super) to make up the shortfall between what you can afford and what a potential property will cost.
But how much super do you need? How much do homes cost? How big does your deposit need to be? How about stamp duty?
So how do you know how much super you need? Firstly, it depends on whether or not you have other income.
If you don’t, then $600k is probably a good amount. If you have another source of income, like your day job, you can get away with less – maybe only $200k. And if your partner has another source of income as well, things are even easier.
In case You are still skeptical about the exact super you need, Relax. We’ve created a simple formula for it:
How much super do you need? Simple formula:
Your property cost / Approximate rent per week / 25 weeks x 52 weeks. Based on current rental prices, this gives us our total property investment amount in today’s dollars (what we’re aiming for).
So let’s say our target property is $500,000, and it will rent out for $250 per week – that means it earns us $5000 per month.
Here is a break down of what we will be covering today.
Learn The Rules Around Buying A Property With Super
There are some rules around property purchases which are as follows:
You must be over 18 to set up a Super fund and at least 65 by retirement age.
This means you can only buy a property with super in between these ages. Your superannuation account must also be open for at least 12 months before making any contributions – unless you have reached your preservation age (55-60 years old) when you are permitted to make contributions without setting up an account.
Once you’ve got that sorted, it’s time to do some research on how much super you need to buy an investment property (which has been explained above) and whether there is enough cash flow within your chosen location to sustain rental returns.
The next step is working out what kind of investment property purchase makes sense for your situation. This can be tricky because there are so many options available. However, an excellent way to start is by looking at market statistics on past and current prices in an area you’re interested in buying property.
This will give you an idea of how much you can expect to pay per square meter and how much rental income can be expected from various properties in that area. Suppose all goes according to plan after crunching some numbers and running some projections.
In that case, you should have a rough idea of how much super it will take to buy investment property in a Particular Area. But remember – every rule has its exceptions! It may take less or more than you think based on other factors.
What are your options if you don’t have super enough?
Luckily, if you don’t have super sufficient for your investment property purchase, there are other options that you can use.
These are called non-concessional contributions and include term deposits or bank accounts.
Essentially, you’re putting your hard-earned money into an investment and earning an income from it – what could be better? However, before you start stuffing cash under your mattress in preparation for your next purchase, you should consider a few things first. Using non-concessional contributions will always be at least marginally less efficient than using superannuation.
You Need A ‘Super Certificate’
A super certificate is a superannuation lump sum that can be used to buy an investment property.
You can withdraw from your super fund account and use it to cover expenses associated with purchasing a property, such as stamp duty, legal fees and building costs. An awesome payout is usually tax-free, so you won’t have any additional out-of-pocket expenses or what you would normally pay on a regular deposit.
Plus, using your super money means your steady income remains untouched. So you don’t run into any cash flow issues while also investing. The only drawback is that you’re limited to just one withdrawal every three years. However, if all goes well, then a super payout could yield a larger return than if you didn’t invest.
Further More, you’ll need a super certificate to access your super funds. How much do they cost?: It’s important to note that not all real estate agents are authorized to provide awesome certificates, so make sure you ask for one when discussing how much super I need to buy an investment property with your agent. The good news is that they aren’t expensive; typically around $300-$500, depending on which state you live in.
A Common Trap: Mistakes People Make When They Invest Their Super On Property
One common trap people make when they invest their super On property is buying an asset-based on emotion rather than logic. It’s easy to want an investment property if you love spending time there. Calculate how much of your super you can afford to lose before purchasing your investment property.
If you have bad debt, avoid using your super to repay it -Bad debts include credit card debt, personal loans and hire purchase agreements- lest interest outweighs any possible returns.
Another common mistake people tend to make when investing their super in property is failing to set achievable goals for themselves. Everyone wants quick results and alluring high capital growth rates, but these are often unrealistic expectations.
This may lead you to financial distress or hardship, where you will be forced to sell your investment property below market value or leave it vacant.
This can be avoided by choosing realistic goals that match your current income level and desired risk tolerance and then implementing them into good strategies such as long-term hold strategies or growth investments that pay off over longer periods.
How Much Super Do I Need To Buy Investment Property? FAQs
Buying Property With Super Pros and Cons?
With super and pensions on your side, you can draw down extra funds at retirement age.
Alternatively, if you don’t have much super or savings, it might be more appealing to forgo super and keep saving cash for when you need it.
As with most financial decisions, there are pros and cons either way. When deciding how much super is enough to buy an investment property, you should consider all of these options carefully.
Can I use my super to buy a house to live in in 2022?
You can use your super to buy a house to live in as long as you are under age 65. You cannot use your super to buy a place to live if you’re aged 65 or over.
What types of property can I invest in With my Super?
Depending on your financial situation, you may be able to buy an investment property using your super.
However, it is important that you only use it for low-risk assets. Low-risk investments are less likely to cause losses or negatively affect any other investments you have within your super fund.
That way, if something does go wrong with one of these assets, it won’t affect your other investments or withdrawable cash in your account.
Can I use my super to buy an overseas property?
Yes, you can use your super to buy overseas property. However, it’s important to note that your super has two separate accounts (or sub-accounts): employer contributions and member contributions. You can’t use your member contributions to buy overseas property.
However, you can use both super funds when buying Australian properties.
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