Self managed super fund home loans

You are now able to buy a residential, rural, commercial or industrial property through your self managed super fund (SMSF) and the mortgage brokers at Intellichoice are here to assist in facilitating the growth of your property portfolio! Changes to the Superannuation Industry Act (SIS) ACT) in September 2007 means that your self managed super fund can now borrow money to purchase real estate in Australia. This exciting new development means that investors now have a much larger choice and control over what investments they can include in their SMSF, including investment properties.

How does it work?

Your SMSF wants to buy property (either residential, rural or commercial real estate), but it does not have enough funds for the full purchase. The SMSF can now make an equity contribution on the property and borrow the remainder of the funds to complete the purchase.

An example of a SMSF at work

Your self managed super fund has $150,000 in the cash account. As the SMSF trustee, you want to buy an investment property worth $450,000. A trustee can buy the investment property on behalf of your SMSF under an instalment arrangement.

The $150,000 is used to make an initial payment for the property. The shortfall of $300,000 plus stamp duty and acquisition costs is funded by a limited recourse home loan, using the property as security.

The trustee arranges for the property to be leased to an unrelated party and the rent, together with other SMSF income and/or member contributions are used to make instalment payments.

Once the home loan is paid off, the legal ownership of the property can be transferred to the SMSF.

• Your SMSF can acquire property worth more than its available funds through the benefits of gearing

• SMSF assets are secure, as the mortgage lender does not have recourse to your SMSF's other assets in the event of default

• Your self managed super fund receives all income and capital growth even if the property has not been paid off

• Your SMSF can use income generated from the property to help pay off the home loan

• Interest from the home loan may be claimed as tax deductions by the self managed super fund and can potentially reduce your SMSF's tax liability

Features of a SMSF home loan

• The self managed super fund must purchase property from an unrelated party. Purchases must be arms length

• Investment in property must be consistent with your SMSF investment strategy

• In the event of a home loan default, the mortgage lender only has recourse to the property used as security and cannot claim any other assets in the SMSF

• The property is held in trust for the SMSF, which is entitled to its income

• Your SMSF makes the home loan repayments. After the home loan is repaid in full, the legal ownership of the investment property is transferred to the SMSF

• You can choose any kind of property including residential, commercial, rural, industrial or retail property

• The legal owner of the real estate will be the Property Trustee

• The beneficial owner of the real estate is the SMSF

• As mortgage lender has no recourse to the other assets in the SMSF, this provides the SMSF with absolute protection for its other assets

• The home loan used to purchase the property through the SMSF are personally guaranteed by the member/s of the SMSF

• SMSFs can deal with the property in the same way as investors would deal with 'normal' investment properties outside of the self managed super fun. For example, you can still lease out the property, renovate, make repairs etc. However, this is subject to the terms and conditions of the home loan

• Rent is paid directly to the SMSF. Home loan repayments are made in the ordinary way from the SMSF

• The SMSF can pay out or reduce the home loan at any time - subject to the terms of the relevant home loan

• When the home loan is paid out in full, title to the property can be transferred to the self managed super fund or the property

• The trustee can continue as registered proprietor

For more information about SMSF home loans or if you are looking for an investment property for your SMSF, speak to the mortgage brokers at Intellichoice on 1300 55 10 45.