LMI can help SMSFs build property portfolio: expert

“Although these purchasers are somewhat aware of LMI, there's a need to better educate this group on how it fits in with their wider investment approach and the gains it can facilitate,” Mr McAweeney told SMSF Adviser.

The Helia report is based on a survey of 3,000 home buyers including first home buyers, investors, and additional purchasers and examines their attitudes, behaviours, and outlook concerning home ownership.

The report found a substantial proportion of SMSFs were established for property acquisition (44 per cent), highlighting the substantial proportion using this investment vehicle to strategically achieve more property ownership.

It also found, however, that this strategy comes with additional considerations as properties bought with SMSFs cannot be lived in by fund members or their relatives, and properties must be able to provide retirement benefits to the fund members.

Mr McAweeney said one of the questions asked in the survey was whether now was a good time to buy. The results revealed a surprising 63 per cent of investors believed it was.

“House prices may be going up but investors are motivated by long-term investment returns,” he said.

“Of those investors looking to buy property, 57 per cent were looking at it for rental income and 25 per cent for retirement planning.”

Mr McAweeney said the survey also revealed that 73 per cent of investors understood the concept of LMI and were considering using it as a tool to build a property portfolio and gain tax deductions.

“In SMSF you have to be savvy around tax benefits and the reason LMI helps investors is that it helps them to access the property market sooner,” he said.

“If you use LMI strategically, you can enter the property market sooner and generate wealth.

As well, LMI can help generate rental income and because it is tax deductible it is also beneficial to SMSFs.

Mr McAweeney continued that LMI is traditionally added on to a loan as an additional product option.

“If you are buying property with a loan-to-value ratio of 80 per cent, the bank insists you have LMI and it is added onto the loan,” he said.

“However, if you think house prices are going up, and if you pay the LMI monthly, and the LVR goes below 80 per cent, you can pay off the LMI more quickly.

“You get the tax deductibility, and are only paying LMI for a few months rather than years.”

He added that SMSFs hold around $870 billion in assets with residential property comprising around five per cent of that total.

“One in 10 SMSFs hold residential property,” he said.

“And if you can use LMI in a strategic way it is very beneficial.”