How to buy property through your self-managed super fund
If you have your money in a self-managed super fund (SMSF), to say the past eighteen months have been a little stressful is probably a giant understatement.
While the GFC sent stock prices bipolar you’ve had to sit and watch property prices rise, wishing there was a way to put some of that hard earned money to work in bricks and mortar. As it happens, there is.
Change in rules for borrowing against SMSFs
Back in September 2007 the rules governing self managed super funds (SMSFs) changed so that you could use your super funds to borrow to invest in an asset, such as property.
Up until then, if you wanted to buy property, your fund had to purchase it outright. But now you can borrow anywhere from 60-75% of the property value depending on the type of property and lender.
So if you have – or are considering – a SMSF, this could be a great way to leverage super to grow your assets – and gain some impressive tax benefits too.
What sort of property can I buy?
Through your fund, you can borrow to purchase property such as residential, commercial, retail, rural and holiday apartments. It’s important to remember that this is for investment property only so you can’t move in.
How does it work?
In plain English rather than excruciatingly jargon filled detail (best left to your financial advisor):
- You get a lawyer to establish a property trust outside your fund.
- You find a property, pay a deposit and borrow the rest from a lender through your SMSF.
- The Property Trustee purchases the property and becomes the legal owner.
- The Property Trustee grants a real property mortgage over to your lender.
- Rent from the property is paid into your SMSF.
- You pay off the loan to the lender through your SMSF.
- The beneficiary of the property is your SMSF.