Property Investment with SMSF
February 6, 2023
Self-Managed Super Funds (SMSFs) have the freedom to invest in a variety of assets, including properties. This investment route has become popular, as SMSFs can even borrow money to finance a property purchase. In this article, we answer common questions on how to invest in real estate with your SMSF as well as the rules and obligations that come with it.
How do I buy a property with my SMSF?
You have two options:
- Outright purchase with available funds or
- Take out a loan through a limited recourse borrowing arrangement (LRBA).
In the latter, a separate trust must be established to protect other assets in the SMSF. It’s crucial to consider the long-term ability to repay the loan and fees.
What are SMSF rules for property investment?
The Australian Tax Office (ATO) requires that all SMSF investments, including property, meet the “sole purpose test”. The property can’t be purchased from a relative, used for personal use by members or related parties, or rented out. However, a commercial property can be leased for business purposes at market rate. Failing to comply could result in penalties and disqualification of trustees.
What should I consider before investing in property through my SMSF?
While it offers long-term ROI and tax benefits, property investment also carries risks. Make sure the investment aligns with the fund’s objectives, have enough funds to cover upfront costs and potential property improvements, have solid cash flow to repay the loan, and understand the borrowing criteria and costs. Repayments must come solely from the SMSF and generally require 30% of property value and a minimum fund balance of $200,000.
To sum it up
In conclusion, property investment in an SMSF comes with strict rules and obligations that must be complied with, which is why it’s advisable to seek the help of a specialist to properly manage your retirement savings.
