Super-leveraged property investment is an ideal way for you to grow and accelerate your retirement nest egg. If you have a self managed super fund or are considering establishing your own super fund, you are now able to use these arrangements to help you buy a residential or commercial investment property.
There are several excellent benefits of utilising a SMSF loan as part of your funds investment strategy. A summary of our most popular Self Managed Super Fund loan products is shown in the table below.
How does a SMSF loan work?
Your SMSF wants to buy property (residential or commercial real estate) but does not have enough funds for the full purchase. The SMSF can now make an equity contribution on the property and borrow the remainder of the funds to complete the purchase. The following diagram illustrates how your SMSF can purchase property.
Self Managed Super Fund Loan Features
- The SMSF must purchase property from an unrelated party. Purchases must be arms-length. Refinances are available on a dollar for dollar basis.
- Investment in property must be consistent with your SMSF investment strategy.
- The SMSF loan is limited recourse which means that in the event of a loan default the lender only has recourse to the security property and cannot claim any other SMSF assets.
- The security property is held in bare trust for the SMSF which is entitled to its income.
- The titleholder (legal owner) of the security property is the bare trust, Trustee Company. The beneficial owner of the real estate will be the SMSF.
- Your SMSF makes the loan repayments. After the loan is repaid the legal ownership of the property is transferred to the SMSF.
- Generally acceptable security includes metro real estate in most capital cities, including residential, and non-specialised commercial property.
- SMSFs can deal with the property however and whenever they like, in the same way as investors can deal with “normal” investment properties (eg: lease, renovate, repair, or sell), (subject to the terms of the relevant loan and mortgage).
- All rents are paid direct to the SMSF. Loan repayments are made in the ordinary way from the SMSF.
- The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).
- When the mortgage is paid out in full, title to the property can be transferred to the SMSF or the Property.
Self Managed Super Fund Loan Benefits
There are tremendous benefits in using a Self Managed Super Funds (SMSF) to purchase Real Estate;
- Your SMSF can acquire property worth more than its available funds through the benefits of gearing.
- Your SMSF assets are secure as the lender does not have recourse to your SMSF’s other assets in the event of default.
- Your SMSF receives all income and capital growth even if the property has not been paid off. Your SMSF can use income from the property to help pay off the loan.
- Interest expense may be claimed as tax deductions by the SMSF and potentially reduce your SMSF’s tax liability.
To obtain more information on how these new changes can benefit you, contact us for an interview.