Self-Managed Super Funds (SMSF): What They Are and How to Invest in Property

Use your Self-Managed Super Fund to get a home loan and grow your investment portfolio for retirement.

If you're looking for a way to save for retirement, a Self-Managed Super Fund (SMSF) may be an option worth considering. Unlike other types of super funds, the members of an SMSF are usually also the trustees, which gives them greater control over investment decisions.

One of the investment options available to SMSF members is property investment. As long as it aligns with the fund's investment strategy and risk profile, members can use funds from their SMSF to buy an investment property.

If you have an existing SMSF home loan with a major bank or have had your loan for over 3 years, you should consider comparing with other options and refinancing. More information is available by clicking here.

Ian Manieri is an award winning qualified SMSF home loan specialist who can help. Nationally accredited with multiple leading lenders in the SMSF segment along with digital processes, Ian can assist with purchasing or refinancing with your SMSF anywhere in Australia.

To schedule an appointment with Ian, call 02 4335 1405 or book an appointment below.

BOOK A FREE SMSF LOAN APPOINTMENT NOW

How do SMSF's work?

Your SMSF works in much the same way as any other super fund. During your working life, contributions are made to the fund and invested to create wealth which is distributed during retirement.

Does the SMSF need a minimum balance?

Yes, many lenders require a certain level of liquidity after the transaction and some have a minimum pre-purchase balance.

We recommend a balance of cash and shares of at least $200,000 be available, anything less usually does not allow a reasonable purchase & liquidity for the fund.

Do you charge for your service?

There is no charge for our services to assist you with a new SMSF Home Loan for a purchase, provided the utilised loan amount will be in excess of $250,000 ($150,000 for refinances). Loan amounts lower than this will incur a non-refundable fee of $990 inclusive of GST payable upon application.

Can you do this with a new SMSF?

Yes! When a new SMSF is set up by your accountant or financial planner, you can apply for a SMSF loan by showing historical contributions to your old fund(s). Important information on how to structure the purchase can be found on our blog by clicking here.

What type of property can my SMSF purchase?

Investing in residential or commercial properties through a Self-Managed Super Fund (SMSF) is possible. Properties include:

• Stand alone houses
• Duplexes (if on one title)
• Units/Apartments/Flats (excluding serviced apartments)
• Shops and Offices
• Warehouses and industrial units

...and many more.

The property transaction is subject to certain conditions to be compliant such as:

• The property must be purchased as an investment and, if residential, rented to a third party at arm's length.
• Is not a development - i.e. something that requires construction or is vacant land is not acceptable.
• The property meets the ‘sole purpose test’ provided by the ATO (i.e., only providing a benefit to the members upon retirement).
• The property should not be sold by a fund member or lived in by them or any related person. However, commercial properties purchased by the fund can be leased to a fund member for business purposes, following specific rules and at the market rate.
• Only one title per contract is allowed when purchasing a property through an SMSF. For instance, a duplex across two titles sold in one transaction would have to be changed to two separate transactions and loans.

If you are interested in expanding your SMSF investment portfolio, Ian Manieri, a qualified home loan specialist in Self-Managed Super Fund loans, can help. He is accredited with multiple leading lenders in the SMSF segment and can assist you in refinancing your SMSF loan into something more competitive. You can schedule an appointment with Ian by calling 02 4335 1405 or booking an appointment below.

BOOK A FREE SMSF LOAN APPOINTMENT NOW

How is a SMSF home loan structure different to a "regular" investment loan?

Using a self-managed super fund (SMSF) to buy a property requires a different home loan structure and process. All SMSF home loans are taken out using a limited recourse borrowing arrangement (LRBA), involving a separate property trust and trustee outside of the SMSF structure. The lender only has the property held in the separate trust as security, so the SMSF must meet all loan repayments. Lenders will use the expected rent, investment income, and historical superannuation payments to determine affordability. 

All the income and expenses of the property go through the SMSF’s bank account, and the fund must meet all loan repayments as they are due. If the SMSF fails to do this due to insufficient funds, the lender only has the property held in the separate (bare) trust as security, and therefore cannot access any remaining assets of the super fund. 

Because of this, lenders will expect the fund to have a certain level of cash after the purchase as a buffer, and will generally use the expected rent + other investment income (e.g., interest on the amount of remaining cash) + historical superannuation payments made for their affordability calculations. If there is a shortfall to be made up with voluntary contributions from a member, this will often need to be evidenced by historical voluntary contributions over the past year (or 2 years for self-employed members).

Unlike regular investment loans, your personal income, assets, liabilities, living expenses and age are not necessarily taken into consideration but are required to show your profile as a guarantor on the loan. However, your credit history is considered, and while previous adverse credit will not mean an automatic decline, it may increase the interest rate and/or lower the LVR available to the SMSF.

Is offset available?

Offset accounts included with SMSF laons were intially provided by ADI’s (Authorised Deposit-taking Institutions), such as banks, licensed to hold deposit accounts. Therefore, those separate deposit accounts are not directly captured under the mortgage. 

These days, non-banks are the primary lenders in the market now that banks no longer support SMSF lending. While some SMSF lenders have offset available, this facility is a sub-account of a loan facility. Therefore there is a grey area of the regulations on Limited Recourse Borrowing, and we need to consider whether this would result in the lender having a mortgage over an asset other than the acquired property (ie. the deposit funds) in the offset account, which is not permitted. 

If the sub-account is not considered a separate asset and deemed to be available redraw within the loan facility, those redraw funds may only be permitted for maintenance and repair of the acquired asset. Any other use, such as improving the property while the SMSF loan is in place, or assisting with the deposit for another property purchase, may be deemed non-compliant.

Due to limited industry guidance and potential penalties of non-compliance for both the SMSF and the indivduals, we do not recommend an offset facility even if the lender provides the option. 

Get SMSF home loan advice from an expert!

SMSF Home Loans can be complicated and many mortgage brokers are not familiar with them. Always use a broker with experience and knowledge in SMSF home loans like Ian Manieri at Mortgage Choice Charmhaven.

Ian has many years' experience in SMSF Home Loans and is fully accredited with multiple lenders offering these products and has also completed all SMSF lending compliance and certification training from external registered training organisations.

Contact Ian Manieri - your SMSF Home Loan expert on 02 4335 1405 for a chat, or use the "Book an appointment" button below.

BOOK A FREE SMSF LOAN APPOINTMENT NOW