How to Use Your Self-managed Super Fund to Invest in Property

The words self-managed super funds (SMSF) and property investment in the same sentence may bring cold shivers to some people, but with sound financial advice and doing your homework, you can use your SMSF to purchase an investment property.

There are rules you have to follow though, and here are just some of the considerations you’ll need to think about:

The Loan

SMSFs are what is known as limited recourse loans. This mean, in case of default, the bank can access the investment property and any other property securing the loan.

If your SMSF doesn’t have the assets to purchase a property outright, you can still borrow money from a lender, but there are ratios to consider. Also, you should be aware, SMSF property loans can to be more costly than other types of property loans, so this will need to be factored into your budget.

Purchasing Residential Property

Residential property is very often the first purchase of choice for many investors, but when you’re using your SMSFs, the residential property must be for the sole purpose of supporting the SMSFs investment strategy in building wealth for retirement. Therefore, you can’t live in it (unless you’re receiving pension from the fund and the property has been transferred to you), neither can any of the SMSF members or trustees, or any relatives can’t benefit from the property.

You should be aware too, you can’t use your funds to purchase property from a member or trustee of the fund (such as between family).

Purchasing Commercial Property

You may want to use your funds to purchase a commercial property. Many business owners do this, with their business leasing the property from the fund paying the full rental market rates.

This is a nice win win situation, with your business paying off your SMSF’s loan in the form of rent, and your business claiming the rent as a tax deductible benefit.

New Developments

SMSF properties must be on a single title, so buying off the plan is allowed with an SMSF, but you can’t buy the land to develop or subdivide.

What About Renovations?

While you may find a property which is a ‘renovator’s dream’, you can only repair and maintain a property. You cannot alter the property until the SMSF property loan is paid off and alterations to a property cannot be made if they change the character of the property.

What Else do I Need to Know?

Any tax losses from the property cannot be offset against your taxable income outside the fund.  Also, loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.

For more information about SMSF and property investment check out the Government website

As always, we recommend you speak to a financial expert in this area so you can properly consider all the rules and regulations, and any risk involved.

We’re always looking at ways in which to help you get the best out of your property investment. With over 40 years in real estate and property management, our talented team is constantly looking for new and innovative ways to ensure your property investment experience is exceptional. This is why we are one of Newcastle’s longest established property management companies, so give us a call on 02 4954 8833 or pop into our Cardiff office for a chat.