Following the RBA’s June cash rate increase, we are reviewing what this means for our clients. Learn more

Your practice premises and retirement

When the time comes to retire and sell your practice, consider holding on to your practice’s commercial premises for a steady income stream in life after work. 

When the time comes to retire and sell your practice, you will no doubt be faced with a number of critical decisions, deals, contracts and potential buyers. During this, the issue of real estate is one aspect that could do with extra consideration.

Many practice owners take an approach of putting their practice package on the market – that includes not only the practice as a business, but the premises as well. However, you don't have to sell the practice with the commercial premises as a package deal. Holding on to the real estate might be a far more valuable investment in the long run, than selling it for retirement.

An income stream

The commercial real estate you own can be an appreciating asset which grows in value over time. This is true regardless of if you own the whole building or a single unit or room, where the practice is housed. By keeping the property during retirement, a reliable income stream through rent can be received. Not only that, there is also the possibility that this income stream can increase year-on-year as the value of rent rises from property value. That’s why holding on to existing business real estate as a part of a portfolio of investments could make commercial sense and may prove to be more stable than investing in the stock market with profits made from selling the property in a package deal.

Attracting more buyers

When putting the practice on the market, excluding the real estate from the package might also expand the base of potential buyers. Many younger buyers often struggle with the prospect of purchasing the practice as well as the property. The idea of purchasing a practice is daunting enough for younger investors, so even though they may be able afford to buy the practice on its own, removing the premises from the package might be more attractive to their risk appetite. The eventual new practice owner could also potentially become the prospective buyer of the premises when the time comes to sell the property. As the new practice owner becomes a guaranteed tenant, it could make more sense for them to buy the property from you at some point in the future, than to relocate the practice when it is already well established in its location.

Taxing Times

When it comes to costs associated with retaining the commercial premises, these may be deductible for tax purposes. Possible deductions may include fees for the management and maintenance of the property as well as the depreciation of fittings like carpets, furniture and appliances. Certain construction expenditure may also be claimed. Of course, you should seek professional advice on this issue and it is best to check these with your accountant or financial adviser.

Some rules to know

There are some key rules to know if you’re planning to retain the practice premises as a commercial investment property through your self-managed super fund (SMSF), and make this part of your retirement plan. Among them is that you can only own the property through your SMSF if the property is solely intended to provide retirement benefits. Although there are restrictions on the use of SMSF property by fund members or their related parties, commercial premises, may be able to be leased to a fund member or their related party if used wholly and exclusively in their business.

There are a range of benefits to having your SMSF own a commercial property and then enjoy the income stream once it’s rented out, but it’s vital to check with your accountant or financial adviser first.

Have a good team around you

Planning for the future in retirement is when it’s essential to know all the options upfront, especially when it comes to such a major asset as property. Sound financial advice is a must. You’ll need an accountant and a lawyer.

Let them crunch the numbers and determine the full scope of the pros and cons of holding on to your practice property when entering retirement, rather than rushing to sell it off. Getting the right advice now about keeping your property and turning it into a rental, could lead to an outcome you’ll be grateful for in years to come.

 

Click here to read about how other professionals have achieved their goals through using finance through their SMSF. Contact one of our financial specialists on 1300 160 160 to discuss the options available to you.

 

  • Important Information

      The information contained in this webpage is general in nature and has been provided in good faith, without taking into account your personal circumstances. While all reasonable care has been taken to ensure that the information is accurate and opinions fair and reasonable, no warranties in this regard are provided. 

      The issuer and credit provider of these products and services is BOQ Specialist – a division of Bank of Queensland Limited ABN 32 009 656 740 AFSL and Australian credit licence no. 244616 (“BOQ Specialist”). Terms, conditions, fees, charges, eligibility and lending criteria apply. Any information is of a general nature only. We have not taken into account your objectives, financial situation, or needs when preparing it. Before acting on this information, you should consider if it is appropriate for your situation. BOQ Specialist is not offering financial, tax or legal advice. You should obtain independent financial, tax and legal advice as appropriate.