Using your SMSF to buy property

In short, a Self Managed Super Fund (SMSF) is a fund with a maximum of five members (all trustees), which is managed by the members and for the members.

Self managing your super this way can provide greater flexibility and provide greater tax benefits, ultimately contributing to a higher level of wealth creation and, therefore, more cash to splash once you reach retirement!
Here, we explain some facts you may not have known about using super to purchase property, and how it all works.

Why are SMSF so Popular?

We’ve seen a huge spike in people taking out SMSF over the last couple of years, mainly due to the fact that people are starting to hear more about them and how they work.

Additionally, people are attracted to the flexibility of SMSF. With such a small number of people in the fund, everyone is able to have some influence over what investments are made and how the fund is managed – obviously not the case with other Super Funds. 

They also appeal to people seeking to maximise their tax concessions whilst capitalizing on the low cost to run the SMSF. 

Why buy property with your SMSF?

Did you know that you could use your SMSF to buy residential or commercial property in Australia? It’s seen to be of benefit to the fund by adding diversity to the portfolio, while adding an element of security and stability due to its long term/low risk factor as opposed to the short term/high risk gains or losses associated with the stock market.

Super funds can now borrow up to 80% of the purchase price of an investment property and there is also the potential to completely eliminate capital gains tax.

The Technical Stuff

The only way to use SMSF for any form of property purchase is by using a ‘limited recourse borrowing arrangement’ (LRBA). The regulations with regard to SMSF and LRBA, were clarified and eventually finalized and released in May 2012. 

For instance, borrowed funds can now be used for the purchase and renovation of older properties, while not being used to ‘improve’ them. The only recourse for lenders, should there be any default, can only be on the property the loan refers to, giving the SMS fund greater protection for the remainder of its investments.

The clarification of these regulations makes SMSF investment in commercial and residential property an even more attractive proposition for people considering making the switch or using their funds to purchase property.

Although the initial outlay of money for the property purchase, including deposits, legal fees and stamp duty, plus the time needed seeking out a lender prepared to lend under the LRBA may seem daunting, there are plenty of advantages to consider.

Do your own research

As with all financial decisions, it is advised that you do your own research carefully to determine whether this option is right for you. You will need to consider your objectives long term and search for a property that fits your criteria to best leverage your SMSF. 

With residential property in Australia currently returning approximately 10.3%pa, comprising 6.8% capital growth and a 3.5% net income, and additional tax incentives and concessions, buying property with your SMSF starts to look like an extremely attractive proposition. 

If you have other members in your SMSF, have a chat to them about whether they think it is a good option and check out all the rules and regulations involved.

We can help take you through it and find a suitable lender when you’ve decided it’s the way to go.

Contact one of our knowledgeable brokers for an initial chat today.


* All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product. Information correct as at 5/6/14.