Self managed super funds buying property
We all know….Australians have for a long time have had a love of owning their own property, in fact Australia has one of the highest home ownership in the world. So it make sense to take the next step and look at the options of a Self managed super funds buying property.
But Did you know?
You cannot live in a property that a SMSF owns and there are some other restrictions. However, when you look at the graph below you can see property values in Melbourne has doubled in the period from 2006 to 2016 it makes a compelling argument to consider property as a investment choice for your Self managed super fund.
The property value increased over $400,000 for those ten years, that’s $40,000 per year equity increase. And if this was inside a SMSF and you sold the property after you retired that capital gain of $400,000.00 would be Tax free under the current taxation rules.
Not a bad little earner
So how can your Self managed super funds buying property?
Since 2007 the rules regarding a self managed super funds buying property have been relaxed enabling a self managed super fund i.e. SMSF to borrow funds to purchase a property, this can be either for a residential property or commercial property.
So it is a lot easier to now for a SMSF to buy property…. But how?
Depending on the funds available in your Self managed super fund most lenders will require a 20 to 30% deposit plus funds for stamp duties etc. plus the lender will require the fund to have cash left over to service its other commitments.
How much I hear you ask?
This depends on the lender some have a requirement of a % of net assets or a set amount.
As we said earlier you and fellow members of the self managed super fund or relatives can’t live in a property bought by a SMSF. However you can rent a commercial property that has been bought by your SMSF.
The other main difference regarding a self managed super funds buying property is the loan type is different as follows:
• When a Self managed super funds borrows funds to buy an investment property it is called a limited recourse borrowing arrangement or LRBA. This means the lender only has the ability to call on the assets directly related to the loans and not any other assets in the SMSF if there is a default on the loan.
• Most LRBA loans for self managed super funds buying property have a higher interest rate due to the “higher risk “and depending on the lender the SMSF will require a minimum deposit of 20%.
• There are a lot of lenders who do not provide lending for self managed super funds buying property, so there are limited options in the market.
The other things to consider
Most lenders like established properties with a comparable rental properties in the surrounding area and will not consider new properties for a SMSF loan
As the contract of sale, it needs to be a single contract purchase with a deposit payment and the remainder at settlement this rules out a land purchase and a construction of a property. ie. With land and house construction usually it consists of a land contact and a building contract.
Let us Help
SMSF Loans Melbourne supports you through the entire process and we work with your accountant, financial planner, solicitor and real estate agent to aid successful outcomes when the SMSF is borrowing to buy property.
If you have any questions regarding buying a property in your SMSF please contact SMSF Loans Melbourne for a free catch up or just a quick chat to review what your SMSF is doing regarding buying property and how we may help.
Contact SMSF Loans Melbourne here.
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