This is something you cannot do in an Industry or Retail fund. This is one of the major advantages of a SMSF that many of our clients have taken advantage of.
Your SMSF can also borrow to purchase property. Types of property allowable are;
• Farms and associated homes (can borrow)
• Residential investment (can borrow)
• Commercial investment (can borrow)
• Vacant land (can’t borrow)
• Under construction (can’t borrow)
• Overseas property
Freehold Property – No Loan
Your SMSF purchases the property and all rent gets paid to your fund and it must pay all the associated expenses (council rates, water rates, depreciation, repairs, etc)
If all SMSF members are aged 55 or older and have commenced a transition to retirement pension, there will be no income tax payable on the net rent AND there will be no capital gains tax payable on the sale of this property.
Mortgaged Property – Loan
The process of borrowing in your SMSF is a little more complicated.
The loan must be a “limited recourse loan” i.e. if you default on the loan the bank only has recourse to the target property itself and cannot touch your other SMSF assets.
In order for this to happen, the property is purchased by a “custodian” who holds the property in trust for your SMSF until the loan is repaid in full (refer to diagram below)
All rent gets paid to your SMSF and all loan repayments and expenses are paid by your SMSF.
You can contribute commercial property to your fund but not residential property.
You can act as “the bank” and lend money against property that you contribute to your fund.
Currently you can borrow up to the following loan to value ratios
LVRs) for each property class:
LVR’s: Residential 80%
At Super Initiatives we are registered loan brokers and have assisted many of our SMSF’s borrow to buy property.
Our service is free and we have access to over 30 banks. Due to the complexity of these loans, pre-approvals are recommended before you commit to a purchase