Australians love investing in real estate – and a self-managed super fund (SMSF) loan can make the benefits of investment property ownership a reality for many borrowers. Whether a commercial or residential property, an SMSF loan can play an important role in your retirement plans.
A self-managed superannuation fund (SMSF) is a great way to have control over your retirement savings. With an SMSF, you’ll have the flexibility to invest your superannuation in projects that you think are lucrative and worthwhile.
How Does it work?
SMSF lending allows you to combine your existing superannuation funds with a loan to purchase an investment property. This can be either a residential property (house or apartment) or commercial premises(e.g. warehouse or office space).
When planning what type of property to buy and whom you plan to rent it to, the ATO stipulates a strict checklist of conditions to determine if a particular property is suitable and whether the purchase transaction can be completed compliantly.
SMSF loans and the Lenders
Not all lenders offer products suitable for SMSF lending, so professional assistance can help you find the right loan to meet your needs. Interest rates and application fees on SMSF loans can vary greatly and be higher when compared to other types of residential home loans.
The type of loan offered is called a limited recourse borrowing arrangement (LRBA). An LRBA protects the SMSF by safeguarding other assets held by the SMSF from the lender if the loan defaults.
What are the costs?
Establishment costs – the initial costs of setting up all of the required legal entities, purchasing the property, and applying for a home loan can be expensive and need to be considered.
Ongoing cash flow – you must have enough cash flowing into your SMSF to cover ongoing expenses like loan repayments and other property costs, including insurance, council rates and property management.
Paying out the loan – once the home loan has been paid off in full, the legal title of the property needs to be transferred out of the holding trust (known as a Bare Trust) and into the SMSF, which may result in government fees and other fees.
Getting started
So, you understand how it works and have decided you would like to explore your options. The first step is to find professional to guide you through the process. Professionals who can assist you are;
• An accountant to crunch the numbers and ensure tax laws are considered.
• A financial planner to create a holistic investment strategy for your financial future. They’ll take into consideration your overall financial needs and objectives.
• A legal professional to create the required legal entities and to navigate the legalities for you;
• A mortgage professional/brokers to guide you to the right SMSF lender’s product for your needs.
Please note the information contained in this article is general in nature and does not take into account your personal situation.
If you would like to find out more about SMSF Lending please reach out to our broker Anup on 0415 900 264 or email anup@drawequity.com.au
Draw Equity (Mortgage and Finance Broker)
