Factors to Keep in Mind When Using SMSF Loans to Buy Property

22 Mar

Running your own super fund means that you have the flexibility to invest in many different types of property including residential, industrial and commercial assets. Making property investments through your SMSF comes with a lot of advantages. For once you would have to pay a lot less taxes for your SMSF property than you would for any other type of properties that you own outside of your super fund. Also when the property is purchased through SMSF lending you won’t be obliged to pay tax on capital gains or rent once your super fund enters the pension phase. Before you start investing in property it’s important to make a great investment strategy that would meet your financial goals.

SMSF Loans

Make sure your super fund has enough cash flow for making the investment. The money can come from contributions, rental incomes or earnings made from other investments. If your fund doesn’t have enough money to buy the proper you can still make the investment by using SMSF loans. This means that you will make a contribution on the property using money from your fund and borrow the rest of the funds to complete the purchase. There are some important factors that you need to keep in mind when using SMSF loans to purchase an asset.

  • You can only use the borrowed money to buy one asset or a collection of the same assets like a parcel or shares of the same type that have the same value on the market.

  • Any SMSF asset must be held by a trust, therefore you would need to establish a bare trust separate to the super fund.

  • Before paying the deposit money and making any investment contracts you must obtain a loan approval.

  • As a SMSF trustee you will receive the beneficial interest in the purchased property, however the legal ownership of the asset will be held by the trust.

  • By making one or multiple payments the trustees of the super fund have the opportunity to obtain the legal ownership of the property.

  • The SMSF is not allowed to use the borrowed money to improve a purchased property, but can the borrowed funds can be used to maintain an asset.

  • You cannot live on a property that has been purchased through an SMSF, but you do have the right to live on that property once you retire.

  • You can use rental income or super contributions to repay the SMSF loan, this means that the super fund should have enough cash flow to cover all the expenses.

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