Taking advantage of direct property acquisition with your SMSF
This information was provided by Mark Bonney who is director of DAB Financial Solutions. They are chartered accountants, tax agents and financial planners.
The emergence of choice in directing where your superannuation contributions are to be paid, has led to an increase SMSF. One of the advantages our clients suggest for setting up a fund is that their direct involvement gives them control over their long-term wealth creation.
Naturally, taking on the position of trustee of your SMSF brings with it responsibility due to the onerous requirements of legislation.
SMSF can now Borrow
Previously, a SMSF was prohibited from borrowing.
Now leveraging strategies are available to acquire investment assets. For example a SMSF can buy property directly so a business can use their super to buy their business premises or a residential investment premises.
How it works?
The SMSF chooses a property for investment:
- Residential property must be acquired from an independent
vendor.
- Non residential property can be purchased for full value
from a related party so long as property is used for
business purposes.
SMSF obtains a loan approval.
SMSF provides deposit on the property.
The property is purchased via a third party (property trustee) who holds the property in the trust until the loan is repaid.
The SMSF becomes the beneficial owner of the asset. The SMSF must have the right to acquire legal ownership of the asset.
The lenders recourse (claim should there be a default) is limited to the asset purchased.
Rent income is received from which costs in relation to
property are paid.
Maximum loan to lending values apply according to the parameters under the legislation. For example one of the major lenders has provided a maximum loan term of 10 years and loan to value ratios for:
- Residential 72% to 1.5M
- Commercial 63% to 5M
To find out more about buying property for Self Managed Super Funds please contact us on 1300 664 373 or email enquires@prospergroup.com.au
This information is general and must not be relied upon in any way. You must seek professional superannuation advice to assist you according to your circumstances and the requirements of the SIS Act.
