How to invest in property through an SMSF

For several years, self-managed super fund members have been able to invest in residential property. However, there are many strict guidelines that must be followed.

The first step is to have a discussion with an expert to determine whether investing through an SMSF is the most appropriate approach to property investment given your personal circumstances.  The expert would be a Financial Planner who can assess your current financial situation and plan your future financial needs for both the short and long term leading into retirement.   

If you decide that an SMSF is the way forward then the next step is to set up the SMSF, it is recommended and that you use the services of a specialist to do this.  It is important that you do this before you start looking at an investment property to buy using your SMSF.

Another tip is to be aware that rolling over any existing super into a SMSF may take up to a month to process, so build in time for this to occur.

If you need a loan to buy the investment property, you will need to establish a bare trust as that is what the lender lends the money to. The purpose of this trust is to allow a limited recourse borrowing arrangement (LRBA) to occur.  This means, should you hit any unexpected difficulties and be unable to make repayments, your lender can only access the assets that the loan is against i.e. the SMSF Investment Property.

One potential difficulty is that you need to have found the property you want to purchase to be able to apply for and establish the SMSF loan.

When purchasing, we highly recommend you set a longer than normal finance approval period – a minimum of 21 days.

What can you buy?

There are two main, and simple, rules of buying residential investment property through SMSFs. Firstly, you and your relatives cannot live in the property and, secondly, you can maintain the property but cannot improve it.

The residential investment property can be a house, an apartment or townhouse, or any other type of property a non-SMSF investor might consider.

The maximum borrowing within an SMSF is normally 80 per cent of the property value and it’s important to take into consideration that there is a cost to establishing and maintaining your SMSF, as well as subsequent fees and charges involved in the purchase of the investment property.

Thinking of investing in property through an SMSF?

Speak to us at Wyze Finance and we can help find the right SMSF loan to suit you, we will work with you and your Financial Planner to make sure the loan structure is set up properly.