Property investment in an SMSF

Using a Self-Managed Super Fund (SMSF) to invest in property

Establishing a Self-Managed Super Fund (SMSF) and buying an investment property can be a rewarding long-term investment strategy for many people; however, it is not viable or appropriate for everyone.

How can you be sure it’s the right thing to do?

Anyone contemplating such an investment should start with advice from a qualified financial adviser. In fact, many lenders require confirmation that such advice has been obtained. Ultimately it’s your money at risk so don’t rely on advice from a mate at a BBQ, or from a newspaper article, or from someone marketing a new development. And don’t leave this advice until the lender asks, because you may be committed to an expensive course of action by then. Start with our financial planner if you don’t already have an adviser.

How does SMSF borrowing work?

There are many websites explaining the intricate details about establishing an SMSF and buying a property. I refer you to Superannuation Warehouse as a source of information about the setup and running of an SMSF.

SMSF borrowing essentials

Expect to borrow no more than 80% of the property value. The SMSF must have enough cash to at least cover the other 20% plus all purchase costs, like stamp duty, and setup costs, like accountant’s fees for establishing a security trust. Often your adviser (and some lenders) will also require an amount of cash to be retained by the SMSF.

The SMSF will demonstrate it can afford the loan from:

  • Proposed rent;
  • SGC contributions from members who are salary/wage earners, with the amounts to be demonstrated by payslips)
  • SGC contributions from members who are self-employed; with the amounts to be demonstrated by tax returns;
  • Amounts being salary-sacrificed above the SGC can also be considered;
  • Income from SMSF investments that will be continuing.

Lenders have specific loans for SMSF lending, and these have a higher interest rates and fees than regular investment loans. It’s reasonable to allow $2,000-$3,000 for establishment fees.

The documentation required by each lender for an SMSF loan includes the SMSF Trust Deed; evidence of the funds in the SMSF (or about to come from your current super fund); evidence of the member’s income, plus much more. Contact us for details.

Why you need to call us

You need to call us because:

  • You can deal with one office for both your financial planning advice and lending;
  • We have access to a wide range of lenders offering SMSF loans;
  • You will be guided through this complex process with the benefit of our extensive experience.
Posted in: Property investment

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