Is SMSF Borrowing The Right Choice For You?

Self managed super fund loans can be the perfect way to invest in property andhelp towards a comfortable retirement.First, anSMSF has the ability to acquire a property it might not otherwise be able toafford. 

Secondly, through the use of limited recourse borrowing, SMSFs can resteasy knowing any other assets are secure since lenders do not have recourse tothem in the case of a default.

SMSFs notonly receive all income and capital growth from a property even if it hasn’tbeen fully paid off, but the SMSF can use income from the property to help payoff the loan. 

Finally,interest expenses from an SMSF loancan be claimed as a tax deduction, helping to reduce the SMSF’s tax liability.

For thesereasons and more, it’s no wonder investment through the use of SMSF loans hasbecome increasingly popular.

However, aswith any financial decision, it’s important to weight the pros and cons andfigure out if SMSF borrowing is the most suitable choice for your specificneeds. 

SMSFloan considerations

Loanrepayments must be made from your SMSF, as it is the entity borrowing. Thismeans it’s necessary that your super fund consistently has sufficient cash flowto meet repayment obligations.

Also, thereare very specific regulations in place regarding what kind of alterations canbe made to an SMSF property investment. For instance, any changes that alterthe character of the home or add value are not allowed.

While repairs arepermitted, you must always be careful that you don’t upgrade a property beforethe loan is paid off.

If youunderstand the potential risks and limitations of SMSF property investment, youcan better decide if it’s the right choice for you.

Speak withthe specialists at Redrock to discuss your options when it comes toSMSF loans and property investment.