Self-Managed Super Fund (SMSF) Home Loans

A self-managed super fund (SMSF) loan is a mortgage controlled by the members of a super fund, which is used to by an investment property. The rental income and capital growth generated by the investment property form part of your super fund’s retirement savings.

How do I purchase a property through my SMSF?

The process of purchasing a property through an SMSF is similar to a regular property with a few key exceptions, and each lender will have their own restrictions. The main difference is that an SMSF mortgage is more difficult to process, with fines of over $200,000 applying to trustees if their arrangements aren’t properly structured. For this reason, it’s a good idea to seek advice from your AusLend Mortgage Adviser.

SMSF Application Process

  1. You create your SMSF with the help of your accountant, who can also advise you of the benefits of investing in residential properties via your fund.
  2. Identify the property you wish to purchase. As with any investment, take your time and consider every aspect carefully, including potential capital gains, rental income and market value to name a few.
  3. Decide who will act as a custodian for the property. The custodian holds the property title on your behalf until the loan is paid off, otherwise known as a ‘bare trustee’.
  4. You submit the home loan application along with all the required documentation.
  5. The custodian issues payment of the deposit and contracts for the purchase of the property are exchanged.
  6. If the loan is approved by the bank, the custodian puts the property up as security with the lender so the transaction can be finalised.
  7. You cover the costs of stamp duty and legal expenses.
  8. Upon settlement of the loan, you begin making repayments and cover other day-to-day expenses on the property as well as collecting the rent. If the rent doesn’t cover the repayments the difference will need to be made up through your SMSF contributions.
  9. Once the loan has been paid off, the title can be transferred to the SMSF from the custodian or the property can be sold off.

Restrictions on an SMSF property

There are some restrictions when it comes to any property bought by an SMSF, namely that you can’t construct a new home, nor can you live in the home at any stage until you’re in the pension phase.

Note that if the purchase is for your business, this is acceptable. While you can’t sell a residential property to your SMSF if you or someone close to you owns it, you can do it with a commercial property.

Renovations and repairs are also a complex area in regards to SMSF properties. You can renovate and repair your property, although this comes with conditions regarding how you finance these activities. Regular maintenance on a property such as fixing leaking taps and other general running costs come with no legal problems.

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