SMSF loans are useful for many Australians. They serve as a great way to save for retirement. But they work differently from your typical retirement plans, as you must buy property to boost your retirement savings.
But how can self-managed super funds be used for new house purchases? Here’s all you need to know about SMSF loans.
What Are SMSF Loans?
An SMSF or a self-managed super fund is a type of investment loan that allows you to use the money as a deposit to buy commercial and residential property. Then, the remaining sum needed to fund the purchase can be borrowed. It is a way to start saving for your retirement.
What makes an SMSF so unique is the fact that you have full control over the investment of your retirement savings – something you do not get with a retail or industry super fund. Not only that, but it is your responsibility to deal with the SMSFs taxes and ensure the loan abides by them and the laws for superannuation.
SMSF loans are great, but they might not be suitable for everyone. You need a lot of knowledge and time to be able to manage an SMSF properly. If you don’t do things right, the fund might not have the best performance.
The Conditions to Buy Property with an SMSF Home Loan
With an SMSF loan, you’ll be able to buy an investment property by leveraging the funds in it. Then, when you retire, you will be able to access the capital gains or income from this new property.
Whereas it is possible to make a property purchase using an SMSF, you have to meet certain conditions to make it happen. For instance:
- The property cannot be rented by a fund member or related party
- Fund members and related parties will not live on this property
- The new property mustn’t be taken from a member’s related party
- The only purpose of the property must be to provide fund members with retirement benefits
Each lender is different, and some will have specific rules in terms of the property you can purchase with the SMSF loan. This is why it’s recommended to check the requirements before considering this loan.
For your SMSF to qualify for super fund tax concessions, it has to pass a “sole purpose test”.
Also, you cannot use the property as your residence or make income from it. It will be considered a serious offense by the Australian Tax Office – doing so will be classified as a pre-retirement benefit. The last thing you want is to deal with penalties because of it.
Buying a Property Using an SMSF
To purchase property using SMSF loans, you have to find the right lender for you. Research your options carefully and compare different lenders until you find a suitable one. Once you do so, send an application.
Read the contract and fill out the property loan contract and documents carefully. If everything works out in your favour, your property will be put as a security with the new lender by the custodian.
Also, ensure that there is enough money in the SMSF for repayments, maintenance costs, insurance costs, and stamp duty. Any rental income you make if you rent the property should be used to repay the loan.
After fully paying off the loan, the property’s legal title will be given to the SMSF. Then, you can either sell the property or keep getting rental payments.
Reach out to a legal professional who has knowledge and experience when it comes to SMSF lending matters before you purchase a property using SMSF funds. This way, you will be able to avoid potential problems.
SMSF funds can be useful for those looking to save for retirement. Make sure to take your time to find the right lender before considering these funds, and always respect the rules of the SMSF home loan.