Self Managed Super Funds, or SMSF, has become extremely popular over the last few years. Below is a summary of what SMSF is, what property it can purchase and how it works.
What is SMSF?
Self-managers super is a superannuation trust structure set up so that you have direct control over what your superannuation is invested in (you become the trustee rather than the super fund). Some people invest in shares and some want to set up SMSF just to invest in property. A SMSF takes 1-3 months to set up with all the legal and accounting framework. You will most likely need to take legal and financial advice to establish one.
How can I use my SMSF to invest in property?
You can only invest in property for investment purposes. You cannot yet use it for purchasing a property for you to live in.
It can be used to purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.
Suitable for Australian residents with an established SMSF as well as those planning to establish a SMSF.
Use rental income to assist with repayments.
Property loans are similar to standard home loans.
A limited recourse loan where the amount recoverable on default is limited to the secured property itself, and all other assets of your SMSF are protected.
Choice of repayment types – principal and interest, or interest only.
Choice of loan terms from 1 to 30 years.
Choice of rates – variable, fixed and combination loans (fixed and variable) available.
Any tax losses from the property cannot be offset against your taxable income outside the fund (ie. negative gearing does not apply here).
How does it work?
The SMSF and the trustees of the fund become the property purchaser and borrower.
Your SMSF applies for the SMSF Investment Property Loan.
The property trustee pays the deposit and exchanges contracts.
The SMSF trustee pays all legal costs and stamp duty.
The SMSF collects rent, pays the usual outgoings on the property and makes the loan repayments. It manages the property in the same way as any other real estate investment.
The property is held in trust for the SMSF by the property trustee and once the loan is repaid, the legal title may be transferred from the property trustee to the SMSF, or the property may be sold.
The rules around borrowing through an SMSF are quite complex so you should speak to your financial planner and professional tax adviser before deciding whether to borrow in order to invest within your SMSF.
To find out more please contact Murray Home Loans. We can help you through the process of establishing a SMSF and finding the right loan.