While purchasing Property through SMSF, the buying must be for the purpose of supporting the SMSFs investment tactic for building up wealth for the retirement.

Setting up your SMSF enables you to expand your investment portfolio by utilising super funds for buying commercial or residential property. While you invest by making use of your cash, you are limited with only the amount you possess in your fund.

Though, making an investment in your property enables you to leverage the amount that you have in your fund and increase it by borrowing the remaining amount that you need. This enables you to grow the overall value of your SMSF portfolio by using the money of bank as well as deriving the rental income from your investment property.

Types of Property Investment through SMSF

Your SMSF can buy commercial or residential property, but it must meet the sole purpose test to demonstrate that it is competent for giving retirement advantages to any fund members as needed. This implies that it is imperative to check your investment policy and organize the finance wisely.

• Residential Property

You can buy residential property within your SMSF, as long as it leased out to a tenant who is not associated with any member from that SMSF. This implies that you are not capable to rent is back to yourself. You may not buy a property from a member or any associated party.

• Commercial Property

Similarly, you are capable to buy commercial property in your SMSF, comprising holding your personal business premises in this arrangement. It’s yet imperative that the property meets the purpose test of offering retirement advantages to its members, yet you aren’t seriously confined with as to who you select as tenants. You can rent the premises back to a member of the fund or to your own business or to a related party.

How Much You Can Borrow

• Standard SMSF Investment Loan: Equivalent to 80% of property value. Though, many lenders will restrict your Loan up to 75% of the property value.
• Commercial Property: Equivalent to 70% of property value for non-specialized securities.
• Discounts: Many lenders enhance a margin to their normal residential loan rates for SMSFs. Though, these margins significantly vary.
• Low Doc: SMSF low doc loans are available, even though there are several restrictions.
• Bad Credit: Up to 70% of commercial property or 80% of a residential property with an SMSF bad credit loan.

The Importance of Investing in Property through SMSF Loan

There are various implications of purchasing investment property in SMSF, like:

• Wealth Creation

The ability to leverage the present funds within the SMSF by utilizing loans for buying an asset can aid to grow the value of portfolio.

Repayments for SMSF Property Investment Loan can originate from rental income, interest received on cash invested within SMSF, dividend income from shares retained by SMSF or from contributions made from the members.

• Asset Protection

Things to consider while using SMSF for the purpose of asset protection:

1. Tax Advantages: Holding a property in SMSF can offer benefits of tax saving. These involve being exempted from capital gains tax if you choose to sell the property while the super fund is still in benefits phase. Any rental income received by your SMSF is taxed at 15% that is relatively lower in comparison to the average personal tax rates. You may likewise have the capacity to limit the capital gains tax that you pay after selling an investment property from your SMSF to 10% if you have possessed the property for over a year. When you associate this with owning an investment property in your own name, it represents substantial tax savings.   
2. Business Advantages: It is possible to purchase the commercial property in your SMSF that can be rented to your own business. This enables you to pay the lease from your business that is tax deductible. Also, it enables your SMSF for receiving rental payments that are in surplus of your own contributions, which is an ideal option to build the amount going into your SMSF over the low contribution limits that have been imposed.

Risks Associated with Purchasing Property with SMSF Loan

Some of the risks associated with buying property through SMSF loan are:

• Establishment Costs

SMSF property investment loans are generally more expensive than other property loans. SMSF normally need round $10,000 in administrative and legal fees in addition to higher interest rates applied to the restricted recourse loan facilities.

• Inability to Offset Tax Losses

Any tax reductions from the property cannot be offset against your taxable income that is outside the fund if you are geared negatively.

• Complex Terms

Taking an SMSF loan for investing in the property, you have to set up a security thrust, which identifies the lender’s rights and interests of SMSF. These conditions are strict governing how SMSFs acquire property that must be adhered to.

End Words

Therefore, in simple ways you can say that SMSF Property Investment Loan can set you for comfortable retirement.

Author Bio: Alex Smith is an editor and works at Global Capital Commercial. He enjoys creating, uncovering and disseminating new and interesting perspectives on Finance, Investments and Mortgages. Global capital provides Commercial Loans and Property Finance services throughout Australia.