Self Managed Super Fund Loans
SMSF Property Investment was once the domain of wealthy baby boomers, but now younger Australians on average incomes have begun using self-managed superannuation funds (SMSFs) to invest in property.
SMSF Property Investment
Figures show that people aged between 35 and 54 opened 61 per cent of all new SMSFs, which allow investors to roll their existing superannuation into their own fund and decide how it is invested. Like other superannuation (super) funds, self-managed super funds (SMSFs) are a way of saving for your retirement. The difference between an SMSF and other types of funds is, generally, that members of an SMSF are the trustees. This means the members of the SMSF run it for their own benefit. People set up their own SMSF for control, flexibility and personal investment choice. You get to decide on your fund’s investment strategy and choose what your fund invests in and like all super funds the tax rate of an SMSF is 15 percent. You can only buy property through your SMSF if you comply with the rules.
- Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- Must not be acquired from a related party of a member
- Must not be lived in by a fund member or any fund members’ related parties
- Must not be rented by a fund member or any fund members’ related parties
Loans for residential property
- Purchase residential investment property – SMSFs can use borrowed monies to assist in purchasing a residential investment property within the super fund. The property must be held in trust for the SMSF until the loan is repaid.
- Security of a limited recourse loan – rights of recovery against the SMSF are limited to the secured property. All other assets held in the SMSF are protected.
- Potential gearing benefits – it may be possible to claim the interest paid on the loan and expenses as deductions against rental income for tax purposes.
- Rental income can be used to demonstrate serviceability – rental income from the investment property can be used to repay the loan.
- Integrates easily with existing SMSFs – the loan structure is designed to easily integrate with most SMSFs.
SMSF Property Investment scenarios: what’s OK and what’s NOT OK?
- Repair and maintenance (OK) vs Improvement (NOT OK)
- Retain asset identity (OK) vs Becomes different asset (NOT OK)
- Single asset (OK) vs Multiple assets (NOT OK)
The primary advantage of running a SMSF Property Investment superannuation fund is that you can invest in different types of real properties such as residential, commercial, industrial, and even agricultural.
A minimum fund size of $250,000 is required to get started (dependent on value of property being purchased). This amount will cover the required deposit, legal fees and retention of liquidity within the fund.
Call Customers First Mortgages & Insurance to compare home loans from different SMSF Lenders.