Borrowing for self-managed super funds can be tricky, but easily navigated with us. We are specialists in the SMSF area, knowledgeable of the traps and pitfalls of SMSF borrowing and able to establish appropriate courses of action in order to find funding for your superannuation investment property.
SMSF lending can be a complex environment, but properly executed a SMSF loan can be a very effective method of generating wealth for retirement.
Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.
A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a geared property investment you should assess whether the investment is consistent with the investment strategy and risk profile of the fund.
SMSF property risks
The strategy isn’t without its risks. As taken from ASIC’s Smart Money website, Geared SMSF property risks include:
- Higher costs– SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision.
- Cash flow– Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
- Hard to cancel– If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.
- Possible tax losses– Any tax losses from the property cannot be offset against your taxable income outside the fund.
- No alterations to the property– Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.
We suggest speaking to a financial adviser specialising in Self-Managed Superannuation prior to making the decision to purchase in your SMSF with borrowed funds.