How to borrow through a Self Managed Superannuation Fund.
Changes to superannuation legislation now allow superannuation funds, including Self Managed Superannuation Funds (SMSFs), to borrow to invest, providing certain conditions are met.
If you have a SMSF you may now be able to borrow money to buy a residential property for investment purposes through that fund.
[Note: I strongly recommend that you receive the appropriate investment, tax and legal advice prior to implementing this strategy.]
How does it work?
You want to buy a residential property through your SMSF but cannot fund the full purchase price. The SMSF does, however, have enough funds for a percentage of the purchase price. The SMSF can purchase the property under an instalment arrangement subject to certain criteria. The SMSF provides the funds for a partial payment of the property, pays all relevant fees and borrows the remaining funds to pay the balance.
The property is owned by a separate Security Trust, with the SMSF having a beneficial entitlement to it. The Security Trust may then lease the residential property to tenants on commercial terms. The Security Trust receives lease payments from the lessee, meets expenses related to the premises, and pays the net income to the SMSF. The SMSF uses that net income, together with other fund income or superannuation contributions if required, to make the loan repayments (“instalments”).
The property is security for the loan under a limited recourse loan. In the event of default, the lender has recourse to the property, and to assets owned directly by any guarantors, but cannot claim on any other assets held by the SMSF.
After the loan is repaid, the SMSF then has the right, but not the obligation, to acquire legal ownership of the property.
If this is of interest to you then please call me for more information on 1300 133 193.
