Matt and Kath are both in their 40’s and are keen investors who love property. They have one residential investment property as well as their home. They would like to buy another investment property but they do not have available equity at the moment and they believe their bank won’t lend them any more money.
They wish to purchase as they feel there will be some good opportunities to buy and are confident that over time property prices will continue to grow.
After considering their options with their advisors, they decide to set up a Self Managed Superannuation Fund and acquire a property. They have existing superannuation funds of approx $180,000 for Geoff and $70,000 for Sally which they roll over into their new SMSF.
They are employed and arrange with their employers for their super contributions to go into the SMSF. Of the total assets in the SMSF they invest $100,000 in blue chip shares which pay dividends with franking credits, which then leaves $150,000 to put towards a property.
Matt and Kath are excited and find a property to buy for $320,000 which they can easily afford through their super fund. They borrow $208,000 (60% of the purchase price) and contribute $112,000 from the cash in their super fund to complete the purchase with $38,000 still remaining in the fund to cover stamp duty, legal fees, etc on the property purchase.
The fund now receives rent from the property, dividends from the share portfolio and the regular super contributions from their employers. This more than covers the loan payments and running costs of the property.
After completing these transactions, Matt and Kath:
- have purchased an investment property portfolio without having to use equity in their existing portfolio or contribute any cash from outside the super
- own a property that is funding itself without impacting on their existing lifestyle
- created a share portfolio that they can build upon as they continue to add to their superannuation
- taken complete control of their future by acquiring assets that they are comfortable with and understand
- put a collection of growth assets in the most favourable tax environment under Australian Law (superannuation) thereby reducing any capital gains tax payable on the sale of these assets
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