Yes, SMSFs can borrow money to invest in property, managed funds or shares provided they use a Limited Recourse Borrowing Arrangement (LRBA). Lending to SMSFs is heavily regulated and operates under a stringent set of rules. It’s essential to seek expert guidance from professionals in the know — get in touch with us to learn more.
Your SMSF can buy real estate by borrowing money through what’s called a limited recourse borrowing arrangement or LRBA. The trustee then uses those funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.
Any investment returns earned from the asset go to the SMSF trustee. Should the loan default, the lender’s rights are limited to the asset held in the separate trust, safeguarding the other assets held in the SMSF.
Unfortunately, many lenders now require a personal guarantee from the trustees. So while the assets and funds in the SMSF are protected, the lender can gain access to the trustees’ personal assets.
No. It wouldn’t be compliant with the ATO borrowing rules and there are no lenders offering progress payment options for SMSF loans.
Unfortunately not. The only way to access and use the equity in an existing property would be to sell it.
Under current legislation, lenders are required to hold more capital for SMSF loans than they do for standard residential loans. These loans are more costly to the lender, who in turn passes the costs on to the SMSF. Read here for more details on this.
An SMSF can generally borrow up to a maximum of 80% of the property or asset value they’re looking to purchase with the loan. This is the LVR (loan-to-value ratio). For example, if an SMSF wants to purchase a house with a value of $1 million, they would be able to get a maximum loan of $800,000.
Some lenders require that not all of the liquid asset (cash or shares) in the SMSF be used to purchase a property and impose a minimum requirement. For example, they may require the SMSF can still show 10% of the property value in either shares or cash after the settlement of the property. Learn everything you need to know about liquidity requirements here.
Delays often relate to the time it takes to legally assess the two trust deeds, but lenders continue to improve settlement timeframes.
Absolutely! We can even arrange for one of our lenders to give you an SMSF loan pre-approval before your SMSF has been setup.
SMSF loans are called LRBAs (Limited Recourse Borrowing Arrangements). LRBAs are No Recourse loans, which means the lender has no access to other assets owned by the SMSF in the event of a default. To get around this, banks require the trustee(s) to personally guarantee the LRBA.
Due to being a specialised type of lending, only some banks will give loans to an SMSF. In 2018, many of Australia’s largest banks ceased SMSF loans. Now, there are only a select few second-tier lenders who continue to offer SMSF loans. Your choice of lender is even further narrowed down by whether you’re looking to borrow for commercial or residential purposes. Some of the banks that give loans to SMSFs include (but are not limited to):
- Bank of Queensland
- Switzer Home Loan
- La Trobe Financial
- Liberty Financial
- Mortgage House
- Reduce Home Loans
- Granite Home Loan
- Mortgage Mart
- Think Tank
- Better Mortgage Management
An SMSF loan is a unique loan product offered to self-managed super funds for the purpose of investment. Similar to the mortgage on your home, SMSF loans are used to purchase either residential property, commercial property or another single acquirable asset. Compared to personal mortgages and investment loans, SMSF loans are quite complex and have strict rules and regulations that govern them.
Without seeking professional advice that takes your personal and financial situation into account, it’s impossible to say whether a self-managed super fund is worth it for you. SMSFs certainly offer many benefits over traditional APRA-regulated funds, such as better investment choice and control over your retirement savings because they are private super funds that you manage yourself. There are responsibilities and costs that come with establishing and maintaining a self-managed super fund that require time and money. You also need to seek the assistance of a Legal Practitioner and Accountant. With the right team on your side, an SMSF could be the perfect way for you to boost your retirement savings.
If you are an astute investor or have sound financial understanding and wish to have better control over your superannuation investments, then an SMSF could be a good idea for you. As a member of an SMSF, you are responsible for all of the fund’s decisions and must ensure that the super fund complies with the law. Generally, you will need to engage a legal practitioner, accountant and often a financial planner specialised in SMSF planning to establish and maintain the fund. It is useful to keep in mind that SMSFs tend to have much higher establishment and ongoing costs than traditional super funds — but can be well worth the investment! Of course, without knowing your personal circumstances, we cannot comment on whether an SMSF is a good idea for you. Be sure to speak to your adviser to discuss your circumstances before making a decision.
It is possible to buy vacant land with your SMSF. However, there are a number of factors to consider before doing so;
- Will the vacant land satisfy the sole purpose test?
- Is it going to be a sensible investment choice if it is not producing income?
- What is the land going to be used for? Vacant land purchased with an LRBA is unable to be developed.
- Will the lender approve the loan under a limited recourse borrowing arrangement? They generally won’t
It is extremely unlikely that a super fund would ever go broke. APRA regulated funds such as industry or retail super funds diversify their assets; that is, they don’t put all their eggs in the one basket. So, while one of the investment options they offer could freeze or potentially suffer negative returns, the overall super fund is held up by many other investments. It’s important to remember that the money you have in superannuation is being held in trust for you by the superannuation company, not with the superannuation company and is invested across different types of assets with different fund managers.
If you have a self-managed super fund, it is highly unlikely that you would ever lose 100% of your balance due to poor investment performance, assuming you hold a diversified portfolio of assets. Even in the instance of going bankrupt, your superannuation isn’t considered divisible property. This means that a person’s bankruptcy trustee cannot recover or sell the assets of the self-managed super fund.
You can buy a car with your SMSF. However, there are some fairly strict rules around it. You have to comply with the Superannuation Industry (Supervision) Regulations (1994) which detail all of the rules around an SMSF purchasing personal use assets such as cars. These rules include the SMSF needing to meet the Sole Purpose Test. The sole purpose test specifies that SMSFs have to invest with the exclusive purpose of providing benefits to the members of the SMSF once they have reached age 65 or retire. Assuming that you are a member of the SMSF and therefore a related party to the SMSF, it means that while you can buy a car, you can’t keep it at your address, lease it to yourself or use it.