November 07, 2014
The number of enquiries regarding the purchase of an investment property within a Self-Managed Superannuation Fund (SMSF) is on the increase. Each week I receive calls from people wanting to find out how to use their super fund to buy either a commercial or residential investment property. For some the opportunity to purchase through super represents an excellent investment strategy but for others the outcome in monetary terms may not seem as enticing as first thought. So care and professional advice should always be sought in advance of any decisions being made.
In recent years the rules around borrowing money on behalf of a super fund have changed. These changes have given many people the opportunity to continue with their love affair of investing in property using the funds they have already accumulated in their super as a deposit.
Borrowing or “gearing” your superfund accumulation into property must be done under very strict borrowing conditions called a 'limited recourse borrowing arrangement'. This type of arrangement must only be used to purchase a single asset. That asset could be either a residential or commercial property. What must be considered before making a commitment is whether the investment is consistent with the investment strategy and risk profile of your fund. A statement of advice from a financial adviser will help you to determine this. I can introduce you to an adviser or property specialist accountant who can help you with determining if this strategy suits you.
It is not an uncommon scenario for self-employed people to purchase commercial premises, from which they can conduct their business activity, through their super fund. Others enjoy the confidence of tenants rent and a residential property’s capital growth to satisfy their investment strategy.
Either way, buying property through superannuation is gaining in popularity. If you are contemplating buying property through a Super fund, make sure you contact me to arrange the loan for you. Warning: The organising of a borrowing facility via a limited recourse loan is not the domain of the average bank manager. Asking an amateur to arrange this type of loan for you can have you reeling in despair as “experience” is an important factor to ensure it is structured in the correct way. Falling foul of the strict rules around borrowing through super can attract significant financial penalties. Nevertheless, when arranged by professionals with expertise in the area and coupled with the correct financial circumstances the results can be financially rewarding and effective.
If you wish to discuss this type of borrowing arrangement with me, please don’t hesitate to call me on 0438 258 888.