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Super Fund Strategies: Property Loans in Your SMSF
Manage episode 469839422 series 3622909
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I probably get two calls a week from clients asking me how to buy property inside their Self-Managed Super Fund (SMSF).
SMSFs can be a little tricky to get your head around, and it’s a rabbit hole my husband and I are still going down almost two years into deciding to set one up ourselves. However, I’m going to break things down and give you an overview of what to expect if you’re going down the SMSF property purchase road.
We'll discuss:
Why You Would Use Your SMSF to Buy Property
One of the main reasons people turn to their SMSF for property investment is the limitation in borrowing capacity outside of the fund. Often, they find their borrowing power maxed out, but see potential in the nest egg they've accumulated within their super fund.
Understanding Costs and Limitations
Acquiring property within an SMSF does come with its challenges and costs. Unlike purchasing a home outside your SMSF, where bank-related costs are relatively minimal, buying within an SMSF involves considerable expenses. This includes application fees, valuation fees and additional costs for commercial properties.
Assessing Borrowing Capacity
Traditional lending considers personal income, expenses, and existing debts. In contrast, SMSF borrowing bases its calculations on annual contributions, the rental income from the acquired property, and any income from existing assets within the fund.
Equity, Set-Up and Management Costs
Here's a key difference: unlike property outside super, you can't leverage the equity of a property inside your SMSF to buy more. If a property within your SMSF appreciates, you must sell it to utilise its equity for further investments. This limitation can be a significant drawback.
Before venturing into SMSF property purchase, I’d suggest consulting with an accountant and, if needed, a financial planner. Educate yourself well, because managing an SMSF requires quite a lot of work, dedication and precision.
If you’re ready to jump into your SMSF property purchase adventure, I'm ready to help you - so be sure to reach out!
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