As a pharmacy assistant, you may be looking for ways to build wealth and secure your financial future. One powerful strategy that's gaining attention is using your self managed super fund (SMSF) to purchase retail investment property. This approach allows you to leverage your retirement savings while potentially enjoying significant tax benefits.
Understanding SMSF Commercial Property Investment
When you use an SMSF to purchase retail property, you're making what's classified as an SMSF commercial loan. Unlike residential property purchases, retail properties offer unique advantages for wealth building through your superannuation. These properties can include shops, offices, warehouses, or even pharmacies.
The key benefit is that your SMSF becomes the owner of the property, with all rental income flowing directly into your super fund and being taxed at just 15%. This tax effective investment strategy can significantly accelerate your retirement savings compared to traditional investment approaches.
SMSF Loan Requirements and Structure
SMSF loans operate under a Limited Recourse Borrowing Arrangement, which means the lender's recourse is limited to the property being purchased. This structure protects other assets within your super fund. Here are the essential requirements:
• Deposit requirements: Most SMSF specialist lenders require a deposit of 20% to 25%
• Corporate trustee: Your SMSF must have a corporate trustee structure
• SMSF compliance: Your fund must comply with all SMSF rules and regulations
• Loan to value ratio (LVR): Typically capped at 70-80% for commercial properties
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Financing Options: Principal and Interest vs Interest Only
When structuring your SMSF property loan, you'll need to choose between principal and interest SMSF repayments or interest only SMSF arrangements. Each option has distinct advantages:
Principal and Interest SMSF loans help you build equity faster and reduce the overall loan amount over time. The rental payments from your tenants can help cover these repayments while your super fund benefits from capital growth.
Interest only SMSF loans provide lower monthly repayments, which can improve cash flow, particularly during the early years of ownership. This option is often preferred when rental income is lower or when maximising tax deductions is a priority.
SMSF Loan Rates and Fees
SMSF loan rates are typically higher than standard home loans due to the specialised nature of these products. However, when you consider the tax benefits of holding investment property within your super fund, the overall returns can still be attractive.
Additional costs to consider include:
• SMSF loan fees charged by specialist lenders
• SMSF settlement costs including legal and stamp duty fees
• Ongoing compliance and administration costs
• Property management fees if you choose professional management
Some lenders offer SMSF offset accounts, which can help reduce interest costs by offsetting your loan balance against cash holdings in your super fund.
SMSF Property Rules and Compliance
Before proceeding with an SMSF investment strategy, it's crucial to understand the SMSF property rules. Your super fund cannot purchase property from related parties, and the property must be held solely for investment purposes. You cannot use the property for personal use or allow related parties to occupy it.
Your SMSF must also maintain detailed SMSF Bank statements and records to demonstrate compliance with Australian Taxation Office requirements. Working with SMSF approved lenders ensures your loan structure meets all regulatory requirements.
Benefits for Pharmacy Professionals
As a pharmacy assistant, you understand the healthcare industry and may have insights into prime retail locations for medical-related businesses. This knowledge can be valuable when selecting investment property for your SMSF.
Many pharmacy professionals find that using super to buy an investment property provides:
• Control over their retirement savings and investment decisions
• Potential for higher returns than traditional super funds
• Tax advantages through the 15% tax rate on rental income
• Retirement security through property ownership
SMSF Refinancing and Portfolio Growth
Once you've established your first SMSF property investment, you may consider expanding your property portfolio or exploring SMSF refinance options to access better rates or additional features.
Some pharmacy professionals combine their SMSF investment strategy with other wealth-building approaches, such as investment loans for pharmacists for properties held outside their super fund.
Getting Started with Your SMSF Loan Application
The SMSF loan application process requires careful planning and documentation. You'll need to provide comprehensive financial information about your super fund, including contribution history, current balance, and investment strategy.
Working with specialists who have access to SMSF loan options from banks and lenders across Australia ensures you receive appropriate advice tailored to your circumstances. They can help you understand the various loan amount options available and structure your borrowing to maximise your investment returns.
Whether you're considering your first SMSF property purchase or looking to expand an existing portfolio, professional guidance can help you make informed decisions about your retirement property strategy.
Call one of our team or book an appointment at a time that works for you to discuss how SMSF loans could enhance your wealth building strategy and secure your financial future.
