SMSF Borrowing for
Property Investment
If you want to use your SMSF to buy property, you can do so through something called a 'Limited Recourse Borrowing Arrangement' (LRBA). This arrangement allows your SMSF to borrow money to purchase a single asset, such as a residential or commercial property.
Hereʼs how it works:
Single Asset
The borrowed money can only be used to buy one property, not multiple properties or a mix of different assets.
Limited Recourse
If something goes wrong and the loan can't be repaid, the lender can only claim the property purchased with the loan. They cannot go after other assets in your SMSF or your personal assets.
This setup allows your SMSF to expand its investments into property while keeping the risk of borrowing contained to that single asset.
Acceptable purposes for SMSF Lending
Any existing complying SMSF or are in the process of establishing and SMSF and wish to refinance or
purchase an existing Commercial or Residential Investment.
What properties can an SMSF be secured against?
Generally, lenders will accept the following property:
Residential (single title) Commercial
Office Industrial
Boarding houses or Rooming Retail
Multiple Units (single title) Mixed Use (Single Title)
SMSF Setup and Lending Process
Before deciding to establish an SMSF, it's crucial to consult with relevant professionals to ensure that it's the right choice for your financial goals.
Consult an Accountant
Discuss tax planning strategies with your accountant to understand the potential
tax benefits and obligations that come with managing an SMSF.
Speak with a Financial Planner
A financial planner can help you outline your investment strategy and ensure that an SMSF aligns with your long-term retirement goals.
Talk to an Experienced Mortgage Broker
If you're considering using your SMSF to invest in property, itʼs essential to consult with a mortgage broker who specializes in SMSF loans. They can assess the feasibility of borrowing within your SMSF, help you understand the borrowing power, and assist in budgeting for the property purchase. Engaging a mortgage broker early in the process ensures you have a clear understanding of your financial capabilities and can avoid potential pitfalls.
Cost Considerations
While there is no set minimum balance required to start an SMSF, the costs can be significant, especially for smaller funds. Itʼs generally recommended to consider establishing an SMSF if your super balance is at least $200,000, as the setup and ongoing expenses are easier to justify at this level.
Operating an SMSF with a higher balance tends to be more cost-effective, allowing you to maximize the benefits and offset the associated costs.
Lending Process
Before deciding to establish an SMSF, it's crucial to consult with relevant professionals to ensure that it's the right choice for your financial goals.
1. Decide to Establish SMSF
While there is no set minimum balance required to start an SMSF, the costs can be significant, especially for smaller funds. Itʼs generally recommended to consider establishing an SMSF if your super balance is at least $200,000, as the setup and ongoing expenses are easier to justify at this level.
Operating an SMSF with a higher balance tends to be more cost-effective, allowing you to maximize the benefits and offset the associated costs.
2. Set Up the SMSF
Create a Trust
Appoint Trustees
Register the SMSF with ATO
Open a Bank Account
Create an Investment Strategy
3. Arrange SMSF Lending (if borrowing)
Find a Lender
Choose a Property
Establish a Bare Trust
Apply for the Loan
Complete the Property Purchase
4. Ongoing Management
Repay the Loan
Manage the Property
Ensure Compliance
Need Expert Advice? Contact Loanbox!
Making the right choice can save you money and help you achieve your financial goals sooner. If you're unsure which option best suits your needs, the team at Loan Box is here to help. We can provide personalized advice based on your specific situation.
Contact
Like what you see? Get in touch to learn more.