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Invest in property through your SMSF

What is a self-managed superannuation fund (SMSF)?

Self-Managed Superannuation Funds (SMSFs) are funds initiated by individuals or families to oversee their personal retirement savings. In an SMSF, all members act as trustees, holding the responsibility for investment choices and adherence to both superannuation and taxation regulations.

How do SMSFs work?

Similar to traditional super funds, your SMSF operates by receiving contributions during your working years. These contributions are then invested to build wealth, which is later distributed to support your retirement.

Is this possible with a new SMSF?

Yes. When your accountant or financial planner establishes a new SMSF for you, you can apply for an SMSF loan by providing historical contributions from your previous fund(s), along with confirmation from your accountant or financial planner that your funds are being transferred to the new SMSF.

Why choose an SMSF for your retirement planning?

If you are seeking a path towards retirement savings, consider the advantages of a Self-Managed Super Fund (SMSF). Unlike conventional super funds, SMSFs offer members greater autonomy as they typically act as trustees, empowering them to make investment decisions tailored to their financial goals.

Property investment stands as a lucrative option within the SMSF landscape. With careful alignment to the fund's strategy and risk profile, members can leverage SMSF funds to acquire investment properties.

If you are currently tied to an SMSF home loan with a major bank, you may be overpaying due to their withdrawal from this market. Seize the opportunity to explore competitive SMSF home loan refinance options available elsewhere.

What property can you SMSF buy?

Investing in residential or commercial properties through a Self-Managed Super Fund (SMSF) is feasible, provided that certain conditions are met:

  • The property must be acquired solely for investment purposes and leased out to a third party at arm's length.
  • Properties requiring development, such as vacant land or construction projects, are not permissible.
  • The property must adhere to the 'sole purpose test' outlined by the ATO, meaning it should primarily benefit members upon retirement.
  • Fund members or related individuals should neither sell nor reside in the property. However, commercial properties acquired by the fund can be leased to a member for business purposes, adhering to specific regulations and at market rates.
  • Only one title per contract is permissible when purchasing property through an SMSF. For example, a duplex spanning two titles must undergo separate transactions and loans.

Refinancing your SMSF home loan

Many of the major banks have exited this market, resulting in numerous individuals being locked into "grandfathered" SMSF home loan products. With such products, rates tend to become uncompetitive over time as lenders aim to transition borrowers "off their books”.

Fortunately, assistance is readily available! Zippy Financial Group works with multiple lenders who are prepared to refinance SMSF home loans burdened by high rates from other lenders. The process can be expedited by leveraging existing evidence from the SMSF's history to ensure the loan's affordability.

What is the difference between an SMSF home loan and a regular investment home loan?

Utilising a Self-Managed Super Fund (SMSF) for property purchase entails a distinct home loan structure and process. SMSF home loans operate under a limited recourse borrowing arrangement (LRBA), which necessitates a separate property trust and trustee external to the SMSF framework. The lender secures the loan solely against the property held within the separate trust, thereby mandating the SMSF to fulfil all repayment obligations. Lenders evaluate affordability based on projected rental income, investment returns and historical superannuation contributions.

All property-related income and expenses are channelled through the SMSF's bank account, with the fund responsible for meeting repayment obligations promptly.

In the event of payment failure due to insufficient funds, the lender's recourse is limited to the property held within the separate (bare) trust, precluding access to other super fund assets.

Consequently, lenders typically require the SMSF to maintain a cash fund post-purchase to serve as a financial buffer.

Affordability assessments often incorporate projected rental income, additional investment returns (e.g. interest on remaining cash) and past superannuation contributions. Shortfalls may necessitate supplementary member contributions, which usually require documentation of historical voluntary contributions spanning the preceding year (or two for self-employed members).

Unlike regular investment loans, personal income, assets, liabilities, living expenses and age are not primary considerations, although they may be required to establish the member's profile as a guarantor on the loan. Nonetheless, lenders assess credit history, and while prior adverse credit incidents do not automatically result in rejection, they may influence interest rates and/or reduce the loan-to-value ratio (LVR) available to the SMSF.

Ready to Learn More?

Join us for an enlightening webinar on Self-Managed Super Funds (SMSFs), featuring insights from Natalia Clack of Easy Super and Louisa Sanghera of Zippy Financial. Whether you’re currently managing an SMSF or contemplating establishing one, this webinar promises invaluable guidance to inform your financial decisions and secure a prosperous future. Reserve your spot HERE!

Disclaimer: This information is provided without considering your specific objectives, financial situation, or needs. Therefore, it’s essential to evaluate its suitability in light of your individual circumstances before taking action.

Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.