How to get an SMSF loan

If you have an existing Self-Managed Super Fund (SMSF) or are in the process of establishing one, a Mortgage Choice broker can help you purchase or refinance your property investment. Many of our advisers are well versed in the technicalities involved in SMSF loans and we have a number of lenders on our panel who are also experienced in this niche area.

Overview of SMSFs

While SMSFs don’t suit everyone, it is a growing market, and the number of SMSFs in Australia has increased by 15% in the last 5 years. There are now over half a million SMSFs, which equates to almost one third of Australia’s retirement system and totals approximately $750 billion in assets.

Why should my SMSF invest in property?
Direct property investments account for around 15% of all SMSF assets. The long term nature of SMSF investment goals means that property investment can be an excellent vehicle for an SMSF in terms of generating both income and capital gain.*

There are several other benefits of investing in property through your SMSF.

1. The property can be purchased using money already in your super
2. Rental income is taxed at the concessional rate of 15%
3. Expenses are tax deductible and capital gains tax is lower than for other investors

Financing the property investment

Australian residents with an existing SMSF, or who are in the process of establishing an SMSF, are usually eligible for an SMSF loan to use for the purchase or refinance an existing residential or commercial investment property.

What do you need to do before you borrow?
As a trustee of your SMSF, you need to seek independent financial and legal advice regarding your SMSF borrowing money to purchase an investment property. You should ensure you understand the legislation around the types of properties allowed and the restrictions that are applicable on your investment. You will also need to establish the trust structures required for a loan that are compliant with the relevant superannuation laws.

How does it work?

SMSF loans can vary slightly from a normal property loan and I can advise you on these details. However generally:

• the investment property will be the security for the loan and the lender’s rights of recovery against the SMSF if the loan defaults are limited only to the secured property.
• the SMSF must be able to service the loan itself through rental income, super contributions and income of the superannuation fund.
• loans are supported by personal guarantees from the beneficiaries (trustees) of the SMSF.
• lenders will seek confirmation from the SMSF trustee that the credit arrangement is in line with the SMSF investment strategy.

Don’t have an SMSF?

Finally, always get financial advice before deciding to establish a SMSF and during the setup process. For a comprehensive overview of how they work, and to determine whether an SMSF is right for you, the Australian Government’s Moneysmart website is a good place to start.

*Trustees should always seek the professional advice of a financial adviser when determining the SMSFs investment strategy.

SOURCES:  1www.superguide.com.au/smsfs/smsf-statistics, 2www.ato.gov.au/Super/Self-managed-super-funds/Self-managed-super-funds-20th-anniversary, 3www.afr.com/wealth/personal-finance/do-s-and-don-ts-of-smsf-property-investment-20191008-p52ysa