Arguably the most common question or misconception in this industry is exactly how finance or borrowing to buy property in SMSF actually works.

One of the beauties of having a self-managed superannuation fund is the ability to leverage your super, by borrowing money from a lender, to be able to make more sizable investment purchases, such as Australian residential houses and land.

So What Does Borrowing To Buy Property In SMSF Mean?

Borrowing money through a self-managed superannuation fund for something like the purchase of a home is not traditionally structured like a loan for property investment.

The loan is instead far more similar in its structure to a commercial loan. Imagine you were going to buy a tractor from John Deer for your farm, or a ute from the Toyota dealership for your painting business. You would go in with your business’s credentials, ABN number, trading history and you would put down a small deposit of the value of the tractor or ute, then the seller would finance you the remainder of that purchase, with an agreed weekly or monthly repayment to be made over a pre-agreed period of time. 

The lender may be willing to borrow money from your SMSF for the sole and only purpose of buying the property that you have proposed. The lender (bank) will hold a security (mortgage) over that property and technically it is the bank that owns the property, not your super fund until the final loan repayment is made. Then the SMSF is discharged from the loan and becomes the owner of the investment/property moving forward.

There are many rules and regulations around what type, style, age and location of property you are able to get financed for through a self-managed superannuation fund. This has become increasingly difficult over the last 5 years and lending regulations have tightened and most of the big banks no longer offer a product in this space. 99% of SMSF lending is now written by 3 institutions; La Trobe Financial, St George Bank & Liberty.

SMSF borrowing is most similar in its structure to a secured business investment loan, it’s why the interest rates are significantly higher than traditional home borrowing. Home Loans in the modern day are anywhere from 2% to 3% depending on the circumstance. Whereas borrowing money through a self-managed superannuation fund is usually between 5.5% to 6% interest, due to being a loan offered to a corporation, not a human and is not asset-backed by any of the borrower‘s (your) personal assets e.g. Own Home, Cars, Boats etc.

The true beauty of being able to borrow through your SMSF, and the reason it has become one of the fastest-growing financial services sectors in this country, is because it has the potential to massively accelerate the growth of your super, allowing you to not only profit from the growth of the super funds you had to start with but also to make a profitable return from monies borrowed as well.

Please see an example below.

If you were to invest in a high growth, high yielding investment property, then you should expect to receive approximately a 5% – 5.5% rent yield PA combined with 6% – 6.5% capital growth PA, creating a 11-12% Gross Return PA.

Therefore if you started with $200,000 in super, your super would be growing by $20-25,000 each year. However if you bought a $500,000 house and took a $300,000 loan @ 5.5% interest rate then you would also be making another $15-20,000 a year growth off of the monies you have borrowed.

This example shows you a return of $35-45,000 in your first year of owning a property through your SMSF which is a 17.5% to 22.5% growth on the original $200,000 you started with. These numbers would likely be significantly higher than what is being achieved in your current retail structure at present.

For more information, contact the team at Corbwood & Associates today.

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Investing in property is a goal many of us hope to achieve. However, sourcing funds for an investment property can be a challenge. One option available is to consider buying a property with super. 

Property investing through a self-managed super fund (SMSF) has become increasingly popular in recent years. However, before you pursue investing through your SMSF, it’s important you understand what is involved. 

Buying A SMSF Residential Property – What Criteria Do I Need To Meet?

How you invest your super is still tightly regulated by three key government agencies. Namely:

• The Australian Taxation Office (ATO).
• Australian Securities & Investments Commission (ASIC).
• Australian Prudential Regulation Authority (APRA).

Together, these agencies direct how and when you can utilise your super to invest. The ATO monitors and carries out audits on SMSFs regularly to ensure all arrangements are compliant. 

Before these authorities approve buying a property with super, they will check to see you meet the basic criteria:

• Your fund needs to have a minimum balance to qualify.
• Evidence of contributions of at least $15,000 per annum. 

Additionally, when buying a residential property with SMSF you may not: 

• Buy a property in which you intend to live.
• Buy a property you intend to develop and resell. This is seen as a one-off profit-making exercise rather than proper planning for your retirement. 
• Acquire property through a friend or associate. 
• Rent the investment to an associate or family member.   
• Buy a holiday home that you will use personally or allow associates to use. 

Are There Any Risks Associated With Buying Property In An SMSF?

As with any investment strategy, there are risks involved. Buying property through a self-managed super fund is no different. 

As per ASIC’S website, SMSF property risks include:

• Higher costs – SMSF property loans tend to be more costly than other property loans.
• Cash flow issues – Loan repayments must come from your SMSF. Your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
• Difficulties cancelling – If your SMSF property loan documents and contract aren’t set up correctly, you can’t unwind the arrangement. You may have to sell the property, potentially causing substantial losses to the SMSF.
• Possible tax losses – You can’t offset tax losses from the property against your taxable income outside the fund.

When buying a property with super, there will also be associated fees. These include legal costs, stamp duty, property management expenses and bank fees when pursuing investment through an SMSF. 

Can I Live In My SMSF Property When I Retire?

If you would like to live in your SMSF property when you retire, you will need to have it transferred out of the ownership of your SMSF and into your own name. If this is something you will eventually be interested in doing, we and our associates will be able to walk you through that process.

Before buying a property with super, you should seek professional advice. At Corbwood and Associates, our team is made up of fully qualified and licensed professionals who understand your needs. 

We are passionate about providing quality advisory services for:

• Property investment via self-managed super funds. Both residential and commercial. 
• Refinancing and first-time home loans.
• Property investment advice and wealth creation strategies.   

Contact us to arrange a consultation to see how we can help secure your financial future.

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You might be wondering, what is a self managed super fund?

A self managed super fund is an alternative investment strategy for your retirement. This type of fund is managed and run by the trustees, yourself instead of a super fund.

It allows you to choose how your money is invested in property, shares and other methods. You can in fact borrow money from your superannuation fund to purchase an investment property that can be rented out before you retire.

 What are the benefits of an SMSF?

There are a number of benefits in having a SMSF and how you choose to invest for the future.

The following will detail considerations as part of your SMSF:

Control Of The Investments
As mentioned, you can control how and where your money is invested. There is the option to invest in property as well as shares and fixed interest portfolios. You have the option to borrow from the fund to invest in these things.

Flexibility and Speed To Change
As you have control of the fund, you can quickly sell or modify your investments. If the share market is showing signs of change, a loss, you can sell and move those funds before a loss.

Ability to Pool Your Super
You can collectively pool your super with other trustees. This may be your husband or wife or anyone else you have as a trustee. This can significantly increase the pool of funds you have.

Estate and Insurance Planning
If the deed allows it, you can make binding death benefit nominations that will not expire or need to be updated. You can then control how the benefits are paid out and to whom.

Tax Management
The current tax rate on earnings within a superannuation fund is 15%, however, if the income is produced via assets supporting the income stream such as a pension payment, there will be no tax payable on that income.

Purchasing Property With SMSF
As previously mentioned, you have the option to borrow against the fund to buy and invest in property. This can be residential and or commercial property that is leased out to others who are unrelated to you.

Property is a good long term investment strategy that has less risk than shares and cash. We can assist you with exploring the option in property as part of your SMSF.

Be Organised
As noted, as a trustee, you will be responsible for managing the fund and all related aspects of the SMSF. We recommend that you seek advice across taxation, compliance and related legal elements.

Contact us today to buy property with SMSF.

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Have you lost super during COVID? You may very well be concerned that your super fund took a loss during this time. Some people have lost tens of thousands of dollars during the height of the Covid pandemic. You then ask, what can I do to build my retirement fund back up and protect the fund should something like this happen again?

In addition, you may have lost your job and income as a result of the pressures on businesses here in Australia. This of course puts significant pressure on a person to get by with the costs of living and housing.

The Australian Government allowed people to access their Super early to access up to $10,000 in the financial year to get through the difficult times.

Alternative Superannuation Investment

An alternative to the traditional superannuation fund is a self-managed super fund. Transition-to-retirement rules allow you to access your super while you’re still working up to your planned retirement age.

You can then make an alternative investment in property by purchasing a property, residential or commercial as part of your long term investment strategy. This is on the basis that the property, the home will be rented to tenants over time.

This can help avoid the high-risk strategy of investments in shares and cash and losses. There are also tax benefits of following this type of investment to consider as well. Rental funds can be used as a pension payment during the ages of 55-60 years as a supplement income.

This strategy can help create long term assets that you can comfortably leverage in your retirement with certainty and ease.

We can assist you in setting up a self-managed super fund and discuss the options and timing toward investing in property as part of your fund.

What is a self-managed super fund – SMSF

A self-managed super fund is a private alternative super fund that is self-managed by its benefactors or trustees.

It is run in a way you prefer in terms of investments, complying with super and tax laws. It’s a long term investment strategy for your retirement plans.

It’s recommended to obtain professional financial advice in setting up this type of fund and its ongoing management. This type of fund can help diversify your investment portfolio.

Get Help Today

If you lost super during COVID contact us today to arrange a consultation with our expert team to get started on your SMSF journey.

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