Buying Property Using SMSF
Borrowing Through Your Self Managed Superfund to Invest in Residential or Commercial Property
Generally as an Australian resident you can choose to direct your super guarantee payments and personal contributions to an independently managed superfund or to your own self managed superfund (SMSF).
If you choose to establish an SMSF, one of your key areas of responsibility is to manage your superfund’s investments. You have certain duties and responsibilities when making investment decisions. These are designed to protect your member’s beneﬁts.
When borrowing through your self managed superfund, investments (for example, the purchase of property) need to be made and maintained on a strict commercial basis. This is referred to as an investment at arm’s-length. The purchase and sale price of fund assets should always reﬂect a true market value for the asset and income from assets held by your SMSF should always reﬂect a true market rate of return. For more information about this, you might like to read the SMSF ATO checklist
SMSFs can borrow to assist with buying an investment residential property but must do so within the prescribed legal structure. The property must be held in a Bare Trust. This structure ensures that should the loan default the lender’s rights are limited to the property in the bare trust and not the other assets of the SMSF.
All lenders require the personal guarantees of the directors of the SMSF trustee company or the individual. While the lenders recourse against the superfund is limited to the asset held in the Bare Trust they can then pursue the guarantors personally to recoup any shortfall that might result from a default / loss on sale of the SMSF security property.
The maximum gearing is generally around 70% of the value or purchase price of the property (whichever is the lesser).
Meeting the interest repayments
Rental income from the Bare Trust security property along with income generated by other assets in your SMSF can be used to demonstrate serviceability of the loan.
Estimated COSTS WHEN BORROWING THROUGH YOUR SELF MANAGED SUPERFUND
These are generally higher than standard home loans because the loan approval process is more complex. Lenders on SMSF loans can require an establishment of up to $1750, although these are sometimes waived if a lender has a special offer going.
At cost but around $500 for residential properties up to $750,000.
These will vary depending on whether you already have a Bare Trust in place. The cost of setting up a Bare Trust is generally around $2300. In addition you will have the legal costs for the loan documentation which again varies between lenders but likely to be around $1500.
The above costs are estimates only. Once you decide upon your preferred lender we can provide more detailed information before you make any decision to proceed.
We are also able to arrange SMSF loans for the purposes of investing in Commercial Property. Call our Mortgage Specialists on 9299 1833.