Do you have self managed super but you aren’t too sure what to do with it?
Have you ever thought about using it to invest in property?
The rules and structures for borrowing the money and putting it into property can be quite complex, but here at Mortgage Hero, our brokers can help you decide if a SMSF loan is the right decision and guide you down the right path. Whether you want to invest in residential or commercial property, in Perth or nationally, we can find the best finance options for you and your fund.
Many people don’t realise that you can use your self managed super fund to invest in property, but there can be advantages with the right advice and investment strategy. If you invest in property through your super fund, it will cover all of the running expenses and can also bring substantial tax benefits, because capital gains tax can be avoided if the property is sold when the fund members are in pension phase. Self managed super funds are also able to negative gear property to reduce any tax that they pay on their earnings.
Drawbacks of SMSF Loans
Despite these advantages, there are some drawbacks that you need to consider if you are looking at using your SMSF to borrow money for property investment. Loans through a super fund generally have higher loan costs, while tax losses from the property cannot be offset against outside taxable income. You will need to make sure that you have sufficient cash flow to meet your mortgage repayments and the loan arrangements can be difficult to cancel. You will also be unable to make changes to the character of the property until the loan is paid off.
So, how much can your self managed super fund normally borrow to invest in property?
The maximum is 80% of the property value if you have good cash flow and a strong asset position, however, for standard loans it is generally 72-75%. Normal home loans can’t be used for SMSFs, because the financial institution has no recourse against the other assets of a trust.
There are strict rules about what type of property the fund can purchase. The house must not be lived in, rented or acquired from a fund member or a related party of a fund member. The property must also meet the sole purpose test by providing retirement benefits to its members. The applicants need to be able to prove that there will be a high enough income to support the finance costs. This is done by showing the income of the trust based in the previous two tax returns. If this and the rental income is enough to service the debt, the banks will typically approve the loan.
Make sure you get expert advice from a qualified broker or adviser
Using your self managed super fund to invest in property in Perth can be quite a complex operation and not all banks will lend to you. There are finance products that are designed specifically for the property investments of self managed superannuation funds available from all major lenders. At Mortgage Hero, our finance brokers in Perth can help you find these loans and also try and iron out all of the details for you.
Using your super fund for property investments can be even more complicated than a normal housing mortgage, so it’s good to have an expert on your side. We will go through all of the relevant laws and requirements with you to make sure that everything is in order and that your fund complies with all relevant government legislation. We’ll also compare the various lenders to organise the best deal possible for your fund – and then assist you with your submission right through to settlement.
At Mortgage Hero, our brokers will make the complex simple.