Unfortunately, almost half of Australians aged between 45 and 64 do not feel confident they have adequate funds to do what they want in retirement. Having the right plans in place to manage and grow your super can make a significant difference to your retirement goals. For some, this includes managing your own super independently through a self managed superannuation fund (SMSF).
An SMSF is your own personal super fund that gives you control to make the important decisions around how your super is invested. Managing your own super through an SMSF can be extremely rewarding, but they aren’t for everyone because they require close attention and dedication, particularly prior to setup.
Most of us are accustomed to borrowing to purchase a home or an investment property. However we have found there can still be some confusion about how you can borrow to purchase property within your SMSF.
Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property.
You can use an SMSF property loan to:
You can pay down the loan via:
Income from rent, other SMSF investments and super contributions can all be used to illustrate serviceability and reimburse the loan.
What are the risks of gearing in SMSFs?
Borrowers should seek independent financial and legal advice to ensure it is appropriate for their SMSF to borrow funds to buy an investment property.
Important to know…
It is important to be aware that the loan is a limited recourse loan. In the case of a default, the lender has recourse to the security and any additional assets supplied by the guarantor(s) outside of the SMSF.
The lender won’t have recourse to any other assets held in the borrower’s SMSF. This is a good thing as the balance of your super fund is protected. Once the loan is repaid the legal ownership of the property can be transferred to the borrower’s SMSF.
There are a range of SMSF property loans available and we’re constantly on the hunt for the most competitive finance products available. You can also borrow for other purposes within your SMSF. Think twice about investing in property markets you are not familiar with, AND always do your own research first. Investing within your SMSF IS NOT for everyone. We encourage you to chat with us first BEFORE taking any action.