How to invest in property through a SMSF

For some years, self-managed super fund members have been able to invest in residential property, as long as they follow strict guidelines.

The first step is to have a discussion with an expert to determine whether investing through an SMSF is the most appropriate approach to property investment given your personal circumstances.

If it is, then the next step is to set up your SMSF – we recommend using the services of an Accountant or Financial Planner that is a specialist in SMSFs.

It’s important that you do this step before you start looking at an investment property to buy.

Also be aware that rolling over any existing super into a SMSF can take up to a month to process, so build in time for this to occur.

If you need a loan to buy the investment property, you will need to establish a bare trust as this is the actual entity the lender lends the money to. The purpose of this trust is to allow a limited recourse borrowing arrangement [LRBA] to be established.

This means, should you hit unexpected difficulties and become unable to make the repayments, your lender can only access the assets in your SMSF that the loan is secured against.

Keep in mind SMSF loans take longer than traditional loans to arrange so once you’ve found a property you want to purchase, it’s recommended you negotiate a longer than normal finance approval period – we suggest you aim for at least 28 days.

What can you buy?

The residential investment property you purchase can be a house, an apartment or townhouse, or any other type of property a non-SMSF investor might consider.

However, when it comes to borrowing money to buy residential property through a SMSF there are two important rules to be aware of – firstly, you and your relatives cannot live in the property and, secondly, you can maintain the property but you cannot improve it.

In addition, the maximum borrowing within an SMSF is normally 70-80 per cent of the property value and it’s also important to take into consideration the extra costs in establishing and maintaining your SMSF, as well as subsequent fees and charges involved in the purchase of the investment property.

For more info or assistance with purchasing a property in a SMSF please call 08 8451 1500

Cheers

Sam, Matt & Andy
Urbantech Group
Adelaide Mortgage Broker +plus more…