What is SMSF?
- SMSF stands for Self-Managed Super Fund.
- SMSFs are a type of fund that allows you to save for your retirement. Unlike other types of funds, the members (trustees) of an SMSF run it for their own benefit and must comply with superannuation and tax laws.
- Since 2007, SMSFs have been permitted to borrow money in order to purchase investment assets. This has allowed people to invest their superannuation into a wider range of asset classes including property—both residential and commercial—as well as shares and managed funds. People will now be able to use some of their superannuation money as a deposit on a property.
Benefits of SMSF Loans
- Use property income to make loan payments
- Reduces tax liability
- Add value to retirement saving
- Acquire a higher-value property.
- Secure your assets
Tips on SMSF Property Loans
- Before you begin looking for investment properties, it is essential that your SMSF has been set up properly and all contributions have been transferred into the fund.
- Make sure you have pre-approval from a lender before looking for a property.
- Establish a financial strategy for your SMSF and know what type of property will best suit its needs.
- Refinancing an SMSF loan is possible, but it comes with restrictions and additional costs. Contact a Mortgage Broker to find out more about your options for refinancing the loan.
How do I purchase a property through SMSF?
- Speak to a Mortgage Broker with expertise in SMSF lending to help you plan your purchase and make sure that your SMSF complies will all the requirements.
- When it comes to submitting a loan application, make sure to know what your requirements and objectives are as not all lenders offer SMSF loans.
- Be careful about filling out the property loan documents and contracts as you won’t be able to change the terms of the loan once everything is finalised.
- Once the application has been settled, the custodian will put up the property as security with the lender. The loan is a limited recourse borrowing arrangement (LRBA), which means the lender has no claim over any other assets in the SMSF should it default.
- An SMSF must have enough capital to pay loan repayments, stamp duty, and maintenance costs. If the property is rented out, rental income cannot be used for personal expenses—it must go towards repaying the debt incurred when buying that property.
- When the loan balance is paid in full, your fund will acquire legal title to the property. You can then continue accepting rental payments or sell off the property.
