What You Should Know Before Using an SMSF to Buy Property

published on: November 20, 2018 last updated on: January 20, 2021

A self-managed superannuation fund (SMSF) is becoming a popular way for older Australians to begin planning for retirement. However, these funds are useful for more than just covering living expenses. You may use your SMSF to help fund the purchase of investment properties.

While you have always been able to use an SMSF to buy properties, thanks to changes to the laws, you can now use an SMSF to borrow money to purchase properties.

Using an SMSF to buy property is also useful for business owners. You can continue to use the property as your business premises while paying fair market value for rent. However, there are many regulations concerning the use of SMSFs to purchase properties.

You Cannot Live InA Residential Property:

Before considering the SMSF as an option for funding a property purchase, you need to understand that you cannot live in the property. When purchasing a residential property, the trustees and relatives of the trustees cannot rent the property themselves.

You also cannot use an SMSF to purchase a residential property that you already own. However, you may purchase residential investment properties that you do not plan to live in or rent to family members or trustees of the SMSF.

You Can Rent Commercial Investment Properties:

Rent Commercial Investment PropertiesImage Source: Unsplash

There are also specific regulations for buying commercial properties through SMSFs. However, you may rent a commercial property that you purchase if you pay fair market value for rent. This has become a popular option for small business owners.

If your plans for buying a residential or commercial investment property comply with the regulations concerning SMSFs, the next step is to determine if you need to borrow money.

Borrowing Criteria Is Strict When Using An SMSF:

If you plan to borrow money through the SMSF to help pay for the investment property, you should understand the requirements. For example, most lenders will not approve a loan if the SMSF does not have at least a $200,000 balance.

For help understanding these details, consider working with Mint Equity Sydney mortgage brokers. Brokers can help you review these details and find the best loan products.

Buying a property through an SMSF can be a complicated process. Experienced mortgage brokers assist with this process, allowing you to properly fund your real estate investments.

Limited Recourse Borrowing Arrangements:

Borrowing ArrangementsImage Source: Unsplash

When borrowing funds through an SMSF to purchase an investment property, lenders require limited recourse borrowing arrangements (LRBA). The LRBA typically requires you to establish a separate trust to hold the property.

These are a few of the main details to consider when buying property through an SMSF. However, you should also understand that there may be additional fees and charges. If you plan to use your own personal funds to cover these charges, you cannot withdraw money from the super fund to pay yourself back.

If you have any additional questions about buying property through your SMSF, speak with an experienced mortgage broker. Review your options and ensure that the SMSF provides the best solution for funding your real estate investments.

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Ariana Smith

Ariana Smith is an enthusiastic fashion blogger and freelancer content writer. She loves to write and share knowledge of the latest fashion trends, fashion, and shopping tips and tricks. She is the chief editor at FollowTheFashion.

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