Do you want to build your property investment portfolio, but unsure how to go about it?
One option to consider is buying an investment property in your superannuation fund.
Investing in property through your super is growing in popularity, but it’s important to understand how the process works.
Here’s what you need to consider:
First, you need to set up a Self Managed Superannuation Fund (SMSF) and various legal entities. You’ll need advice and guidance from a financial planner, legal advice from a conveyancer and/or solicitor and to engage an accountant for the ongoing auditing of the fund.
A few rules:
The property must:
- meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- not be acquired from a related party of a member
- not be lived in by a fund member or any fund members’ related parties
- not be rented by a fund member or any fund members’ related parties
- if your SMSF purchases a commercial premises, it can be leased to a fund member for their business at the market rate and will need to follow specific rules.
- you can’t make alterations that change the character of the property until you pay off the SMSF property loan.
Borrowing in your SMSF
Borrowing in your SMSF is called a ‘limited recourse borrowing arrangement’ and involves very strict borrowing conditions. There are a select few lenders that offer this product and unfortunately, none of the major banks do them anymore.
Interest rates and fees are much higher than borrowing in your own name because of the complexity of the product (and probably less competition in the market!).
Interested but don’t know where to start?
You will need to engage a financial planner to assess whether this is right for you. Some advisors recommend you have a minimum of $250,000 in super before you can consider it.
Please get in touch if you would like to know more, I can help you with your initial queries and then recommend a financial planner to get it set up. Just like with all lending you do with me, I will manage the whole process and interact with your financial planner and the lender to ensure it’s a smooth process.