Self-managed Super Fund Lending
A self-managed super fund (SMSF) loan or Limited Recourse Borrowing Arrangement (LRBA) is a loan tailored to those that have a self-managed super fund, for the purpose of purchasing a residential or commercial investment property. Many Australians are making the switch to an SMSF, in order to procure these loans and leverage their funds to reach their investing goals.
SMSF Process
Most people don’t know where to start when it comes to buying property through their super. Thankfully we can refer you to a team of professionals to help make the process simple.
1. Always seek independent financial advice before deciding whether setting up an SMSF is appropriate for your circumstances
2. If financing- Talk with ELk Funding Group to discuss your borrowing power and lender options
3. Choose your SMSF members and set up SMSF Trust Deed- Accountant to assist
4. Apply for ABN and register your fund with the Australian Tax Office- Accountant to assist
5. Formulate your investment strategy- Financial advisor or Accountant to assist
6. Set up SMSF bank account and redirect employer contributions
7. Roll over retail fund super to SMSF bank account
8. Find Property
9. Set up Bare Trust once you’ve found a property
10. Appoint auditor and settle the finance
Commonly asked questions
How does my SMSF purchase a property?
The SMSF chooses the asset in the ordinary manner. Property must be purchased in a commercial ‘arm’s length’ manner. Non-Residential property can be purchased from related vendors so long as it is to be used for business purposes. The SMSF obtains the loan approval. All associated costs of acquisition including payment of the deposit are paid in the ordinary manner by the SMSF. On completion of the purchase, the SMSF manages the property in the ordinary manner.
Can fund members occupy the property?
No. If fund members or related persons occupy the property, the ‘in-house asset rule’ will have been breached. The exception is where the property is commercial and the member’s business/ company rents the property from the SMSF on a commercial basis. (i.e. Market rental).
What other restrictions apply?
The SMSF must comply with all regulations applying to superannuation funds. SMSFs must ensure that the level of investment in any asset class is consistent with its investment strategy. This includes diversification, liquidity and maximising member returns.
The government has also made it clear that super funds investing in these types of investments must have appropriate risk management measures in place and must understand the risks of the investment.
Who pays what and when?
As beneficial owner of the property and the borrower of the loan, the SMSF is responsible for paying all usual costs that are expected if an asset was bought outside of super. These costs can include: council rates, water rates, land tax, interest costs, loan repayments, lenders fees, repairs, property management costs, insurance premiums and associated costs if listed investments are purchased.
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