Can You Borrow Through Your Self Managed Super Fund to Buy Property?
If you’re looking at buying an investment property, particularly a commercial property, it may be a viable option to consider putting it through your Self Managed Superannuation Fund. Assuming your super fund has the money available for a deposit, you may be eligible to borrow the remainder through the fund.
Here’s what you should know before you entertain the idea of using your SMSF to purchase a property.
*Remember the following information is general in nature, and doesn’t take your specific situation into account. Before borrowing through your Self Managed Super Fund, make sure you speak to a qualified Financial Advisor.
Talk to Your Accountant First.
Ok ok - we realise this sounds a little self serving, but your accountant should have a good full picture idea of whether or not this is an appropriate avenue for you.
*(Side note: at Kindred Accounting, we charge on a monthly flat fee arrangement, so actually, it’s not that self serving at all. You can literally call us any time and it won’t cost you extra).
If borrowing to purchase a property, through your SMSF is not something that suits your situation, talking to your accountant first could save you a lot of unnecessary work. But either way, your business accountant should be able to point you in the right direction for the next steps and walk you through the process.
Make Sure Your Trust Deed and Investment Strategy Have the Right Allowances
Your Trust Deed needs to specify that the Trustee has the power to borrow, grant security and allow property to be held by custodians or nominees for the trust. The funds investment strategy also allows for the acquisition of property and the and permits borrowing for that purpose.
If you don’t have the necessary allowances built into your documentation, adjustments can be made if you decide to go ahead with the process.
Make Sure You Have Finance Approved
Your accountant should have given you a fair idea of your likelihood of being approved for finance before you get to this stage, but shop around for in-principal loan approval before you get ahead of yourself. It’s important you understand what a realistic budget is before you get too far into the process. We have a number of relationships with brokers and we’d be happy to point you to someone reputable if you ever need.
Determine Who The Custodian of The Property Will Be
Your lender may require that the custodian of the property be a company, but it’s important you understand who it can be ahead of time. If a company needs to be established, this is something we can arrange for you.
Who the custodian is needs to be put into writing and explicitly say it will act as custodian for the SMSF trustee in the purchase of the property.
Your Self Managed Super Fund Needs to Pay the Deposit
Your SMSF needs to be able to pay the deposit for the property and sign all the necessary documents. The purchase of your property can only be completed using funds from your Self Managed Superannuation Fund and the loan from your chosen lender. You can’t use any gifted or additional funds from elsewhere to help.
Our Controversial Opinion on Property Investing for Self Managed Superannuation Funds
We typically only support clients using their Self Managed Super Funds to purchase commercial property. Sometimes it for their own business because it’s really nice to be in control and be your own landlord… sometimes it’s a commercial property that is leased to an unrelated business at a nice yield.
As accountants we see a lot of numbers flying around, and for us, investing in residential property via an SMSF just doesn’t stack up. The leverage isn’t the same as it is when you invest in residential property personally… you can’t use to equity from one property to “leapfrog” into the next,,, maintenance, issues with tenants, and typically lower yields that make it difficult for those investments to support the required pensions once you reach retirement phase - in our opinion (controversial as it may be) there are better things to invest your money in than residential property, especially when you’re talking about a long term investment like superannuation.
Borrowing to Buy Commercial Property Through Your Self Managed Superannuation Fund Can be a Fantastic Choice.
Make sure you have the right people giving you the right advice when you need it. That means us along with a qualified financial adviser to make sure you’re on the right track.
If you don’t yet have a SMSF - here’s a blog outlining some pro’s and con’s for you to investigate further.
We love partnering with driven and ambitious business owners, to package up their business needs along with their SMSF.
