Wanting to get the best out of your self-managed super fund isn’t just admirable, it’s the responsibility of SMSF trustees to ensure that they are working to build their fund members’ retirement savings. If the next addition to your SMSF investment portfolio is direct property, then it only makes sense that you’d be looking to get the best SMSF loan structure, too.
We explain what you need to know to access efficient and effective SMSF lending for your self-managed super fund, as well as answer some FAQs about SMSF loans.
Buying an investment property in your SMSF
Buying property through your SMSF is one of the key differences between an APRA-regulated fund and the benefits of running your own superannuation fund. Whether it’s a residential property or commercial property though, one of the strict conditions imposed on SMSFs is that the fund must use a limited recourse borrowing arrangement if using borrowed funds to purchase the property.
Accessing the best SMSF home loan means having your ducks in a row (so to speak) before applying.
1. Update the fund’s investment strategy
Self-managed super funds should regularly update their investment strategy, however, in particular when they’re looking at making a direct property purchase. How the property will work alongside the fund’s other assets, as well as describing how the fund will continue to meet its liquidity requirements are integral to consider before purchasing property through your SMSF.
The trust deed must also allow direct property as one of the fund’s investment options.
2. Ensure the fund has sufficient liquidity
The lending policies for self-managed super funds will differ between lenders, however, the SMSF trustee must ensure that they can satisfy the liquidity requirement of their chosen SMSF lender.
A percentage of the property value (not the loan amount) is how an SMSF loan liquidity requirement is calculated. Not only will the fund need to satisfy the Australian Taxation Office (ATO’s) liquidity requirements, but also the SMSF lender’s. Then, of course, the SMSF trustee must consider the cost of stamp duty and other fees (such as an application fee, settlement fee, or legal fees).
In terms of loan repayments, all cash flow for the SMSF must run through the SMSF bank account, including rental payments and SMSF home loan repayments. The rental income from the rental property (whether it’s a commercial property or residential property) needs to be paid into the SMSF bank account, too.
3. Choose between a residential or commercial property
There are some differences between purchasing a commercial investment property and residential property. The income, capital growth potential and restrictions on renting the property to related parties are often key considerations for SMSF trustees.
4. Seek any professional advice you need
Before you purchase an investment property through your super fund, it’s important to speak to your accountant or financial advisor about the implications of doing so, and how SMSF borrowing may impact your fund or its member’s retirement benefits (such as future capital gains).
Bear in mind: The superannuation industry is heavily regulated. Having professionals in your corner can help provide SMSF trustees with the confidence that they are making decisions in the best interest of the fund members, and remaining compliant with the sole purpose test.
5. Access experts in SMSF Loans
SMSF property loans tend to be tricky if you don’t consult a broker with appropriate expertise (like we have at SMSF Loan Experts!). There are many strict lending conditions around property bought through a self-managed super fund. Before your purchase residential property or commercial property through your SMSF, access expert guidance when it comes to SMSF home loans.
SMSF loan experts are experienced in providing tailored finance solutions to SMSF borrowers. Contact the team to discuss your plans, and how we can help you get the best SMSF loan structure for your self-managed superannuation fund.
