Self-Managed Super Fund Info

Using a SMSF to invest in property

SMSFs are emerging as a popular choice for financially-savvy Australians looking for the ability to invest in property. If you have lots of super with extensive skills to understand legal and finance matters, acquiring an investment property through an SMSF may be an option for you.


What is a SMSF?

An SMSF is a trust that features a superannuation structure, which yields benefits upon your retirement. It gives you more control and flexibility in deciding where you want to invest your retirement savings. Therefore, investing in property through an SMSF can be an appealing option for those who want the freedom of choice to invest their super in property for its tax and financial benefits.

The first step

To determine if investing through an SMSF is a good option for you, you should first consult with a finance broker who will look at your personal and financial circumstances and discuss whether this approach is appropriate for you.

What you need to know

As a trustee of an SMSF, you are required to be hands-on with your super, and be responsible for devising an investment strategy and reviewing it on an ongoing basis, as part of your legal obligations.

If you want to borrow money within your SMSF to purchase a property, you need to establish a bare trust. Since a mortgage cannot be legally held in the name of an SMSF, a bare trust must to be set up first in order to apply for a home loan and purchase the property, with all benefits going to the SMSF beneficiaries. The bare trust is a legal document which separates legal and beneficial ownership of properties purchased by an SMSF.

This may also be done for asset protection reasons. If you encounter sudden difficulties and cannot make repayments, the lender will only be able to access the assets that the loan is against.

One of the main ways to contribute to your SMSF is to roll over your existing super balance into your fund. If you do so, note that it may take up to 30 days to process the transfer, so bear this in mind if timing is a factor.

SMSF investment

What property can I buy?

The residential property you buy can be any type of property, whether it’s a house, townhouse or apartment. However, there are two main rules for purchasing residential property through an SMSF.

Firstly, you cannot live in the property and neither can anyone else related to you, since the property purchase must be for the sole purpose of supporting the SMSF’s investment strategy in building wealth for retirement. If you are tempted to buy an investment property for your family to live in, avoid using an SMSF.

Secondly, if you want to improve the property, you are only allowed to use the SMSF’s own funds or member contributions to pay for improvement costs—you cannot borrow money to finance the costs. Furthermore, you are limited by what you can do to improve the property. If you do so to the point where the property becomes substantially different from its original condition, you will be in breach of your terms.

How much can I borrow within my SMSF?

Typically, the maximum amount lender will allow you borrow within an SMSF is 80% of the property’s value. Also bear in mind that there are additional costs including fees for establishing and maintaining your SMSF, plus fees to purchase an investment property.

There is a lot to consider when it comes to investing in property through SMSFs, so it’s important to consult an expert. To make property investment a reality for your SMSF, speak to a Mortgage Providers finance broker to help you secure the right property loan that aligns with your long-term SMSF objectives.