Self-Managed Super Fund Property Loans

With the volatility in the share market in recent years some people saw their superannuation investments decimated. What’s worse is that despite losing vast sums of people’s money, the superannuation funds continue to charge exorbitant fees for the privilege of doing so! Many people are looking for a more stable place to invest their superannuation and some people are just looking to diversify their portfolios away from being 100% invested in the share market.

Self-Managed Super Fund (“SMSF”) Loans can be used to assist with the purchase of property investments whether they are residential, commercial or rural properties. For residential properties the fund can borrow up to 80% of the value of the property and for commercial and rural properties up to 65%. Residential properties must be “arm’s length” property investments (ie you can’t live in your SMSF investment), however commercial and rural properties can be occupied by related parties.

For example, if the owners of a business wanted to get away from leasing the premises that they occupied, they could utilise their superannuation to establish a SMSF and purchase the premises. The steps for doing this would be as follows:

  • A SMSF is established by your accountant or financial advisor. In some instances, the lender will have a process to do this for you.
  • The trustee of the SMSF agrees to purchase the premises and appoints a custodian (entity established by your accountant) to purchase and hold the property on its behalf.
  • The trustee applies for a loan with the most appropriate lender (Samuel Finance can help you with this)
  • The custodian pays the deposit and executes the Purchase Contract with the vendor.
  • When your loan is approved, the custodian will mortgage the property in support of the loan.
  • The trustee pays all costs and stamp duty for the purchase. The trustee will also collect the rent (now paid by the business to the SMSF rather than a landlord) and pay the interest associated with the property once the loan is settled.
  • The property is held in trust by the custodian until the loan is repaid in full, at which point the property transfers ownership from the custodian to the SMSF. Alternatively, the property can be sold, the loan repaid, and the net proceeds returned to the SMSF.

Some of the other benefits of borrowing to purchase property in a SMSF include:

  • Using superannuation to participate in the property market.
  • Ability to gear your superannuation investment to acquire better or more assets.
  • Leverage your investments to potentially generate greater returns and accelerate growth in your wealth.
  • Pay only 15% income tax and no capital gains tax on your property investments.
  • Diversify your super investment portfolio.