Super Fund Loans
Super funds can now borrow money to invest in property after the Superannuation Industry Supervision Act 1993 (SIS ACT) was amended in September 2007. In the past, Self Managed Super Funds (SMSF) could not gear their property investments because many funds did not have the money to purchase property outright and were not allowed to borrow. The 2007 amendment allows super funds to borrow and take advantage of the same gearing options available to regular property investors as long as a special structure is in place (see section 67(4A) of the Act).
More Information on Super Fund Loans
To find out more about investment property purchases through a self-managed superannuation fund using a SMSF loan, or to talk to a mortgage broker about the loan that is in your best interest, simply fill in the form below.
How Does My SMSF Purchase a Property?
Your self managed super fund can choose any kind of property including residential, commercial, retail and holiday units. Once the property to be invested in has been chosen, your SMSF can only purchase property from a member or related entity for business purposes – any residential property must be purchased from an arm’s length vendor. From there, your SMSF will:
- Obtain a loan approval.
- The SMSF’s own lawyer/conveyancer acts on the purchase in the ordinary way. The purchase MUST be in the name of the Property Trustee.
- The SMSF pays the deposit, the balance purchase money (less the amount borrowed), the legal costs, and stamp duty in the ordinary way.
- On completion of the purchase the Property Trustee mortgages the property to the lender. SMSF then manages the asset in the same way as you would with any other real estate investment.
SMSF Leveraged Property Investment Structure
- A super fund investment property that is to be let for business purposes can be purchased from a member or a related entity (i.e. this does not breach the “in house asset” rule under the SIS Act). Investments in property other than “business real property” are permitted provided the purchase is from an arms-length vendor.
- The legal owner of the real estate will be the Property Trustee.
- The beneficial owner of the real estate will be the SMSF.
- The lender has no recourse to the other assets of the SMSF, providing the SMSF with absolute protection for its other assets.
- The loans are personally guaranteed by the member/s of the SMSF (subject to credit approval). SMSFs can deal with the property however and whenever they like, in the same way as investors can deal with “normal” investment properties (e.g. lease, renovate, repair, or sell), subject to the terms of the relevant loan and mortgage.
- All rents are paid direct to the SMSF. Loan repayments are made in the ordinary way from the SMSF.
- The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).
- When the mortgage is paid out in full, title to the property can be transferred to the SMSF or the Property Trustee can continue as registered proprietor.
Laws Governing SMSF Leveraged Property Investment
There are a number of laws governing SMSF Leveraged Property Investment which may appear complex. Get the right team of professionals who are properly accredited in SMSF Leveraged Property Investment transactions who can help you understand super fund loans prior to committing to these products.
How to Acquire a SMSF Leveraged Property Investment
Super fund loans are available through a number of lenders in Australia. Loan terms and features, including interest rates, LVRs on residential or commercial securities and the loan term and amount, will vary widely between lenders. Talk to your SMSF Leveraged Investment Accredited mortgage broker about your options
Disclaimer
This information is provided as a general guide only and is not advice or a recommendation to enter into any transaction, and is subject to the final terms as set out in final documentation from your lender. Loan Market and realestate.com.au Home Loans make no representations as to, and accept no responsibility or liability for, the accuracy or completeness of the information. Loan Market and its affiliates, which includes realestate.com.au Home Loans, do not purport to be, legal, tax, accounting, financial or regulatory advisors in any jurisdiction. Loan Market acts neither as an adviser to, nor owes any fiduciary duty to any recipient of this information.
Prior to entering into any proposed transaction, you should independently evaluate the risks of such a transaction and your ability to assume such risks from your adviser.
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