Self-Managed Super Fund loans (SMSF loans) for Real Estate
A Self-Managed Super Fund is a type of retirement fund from which members have more control over their retirement savings, this also includes more control over investments and a more comprehensive choice of investments. When eligible, each member is entitled to have retirement benefits paid straight from the SMSF. The sole purpose of a SMSF is to provide benefits to every retired member or if a member dies before retirement, the member’ beneficiary will receive the benefits. A SMSF can invest in Commercial Real Estate and Residential Real Estate. However, there are restrictions. For a SMSF to purchase a residential property there are a few extra restrictions than when purchasing a commercial property.
Your SMSF can purchase a commercial property that you already own. However, your Self-Managed Super Fund can not purchase residential property that you or a related person or entity already own. The penalty for getting this wrong may include paying a large percentage of your superannuation fund balance as a tax penalty.
There are some restrictions when it comes to any property bought by an SMSF, namely that you can’t construct a new property, you can conduct major renovations, nor can you live in the property at any stage until you’re in the pension phase. Note that these rules do not apply if your purchase is for your business. While you can’t sell a residential property to your SMSF if you or a related party owns it, you can do it with a commercial property.
Fees and charges may change depending on the SMSF and property purchased, this could reduce your super balance. It is advisable to find out all fees or costs before signing up for this property investment.
Under certain circumstances your SMSF can get a Self-Managed Super Fund loan (SMSF loan).
The SMSF cannot borrow directly but can borrow in a structure called a Bare Trust, which is sometimes also known as a Declaration of Trust. There are governing laws controlling the use of SMSFs borrowing money, and limiting the recourse of the lender in the event that the trust cannot satisfy its repayment responsibilities.
When purchasing property, one will need a deposit of at least 20% of the property value, both for residential and commercial properties, but many lenders will require you to provide 30%. You will also need to cover the closing costs involved in acquiring a property, this is usually about 5% of the property value.
Interest rates will depend on the lenders policy. Different lenders have their own SMSF loans which vary in their interest rates, fees and features. Comparing loan packages from different lenders is a smart choice. Not all lenders will lend to self-managed super funds. Many lenders see SMSF as additional work processing such transaction, for a higher risk loan with a lower profit. Those lenders that do provide Self-Managed Super Fund loans can have very different policies. Low doc loans are not available for SMSFs. Standard commercial and residential loans offered by most by the different banks and lenders can vary significantly. This is even more so for Self-Managed Super Fund loans (SMSF loans). For SMSF loans there can be even larger differences in fees and interest rates. Some lenders offer good deals on SMSF loans for residential property other lenders have good deals for commercial property.
In addition to this, not all lenders can offer an offset account with your mortgage, which is vitally important if you have lots of cash in your SMSF. A 100% offset account is a regular cheque account, except that it is connected to your home loan account. The lender can only charge you the interest on the balance of your home loan minus the balance of your offset account. The good thing about this is
you’ll pay off the loan faster and also save a lot of money in interest.
The information provided on this website is not considered as financial advice. You should get
professional advice about setting up a SMSF before you start. Anyone who gives advice on an SMSF
must have an Australian Financial Services License (ASFL).