All over the country, investors are catching onto the benefits of managing your own super fund. According to figures from the Australian Taxation Office, in the five years to 30 June 2014, SMSF assets grew by 49 per cent – making them a huge part of the superannuation industry. There have also been a few developments that are getting property investors involved – namely, the emergence of self managed super fund loans.
By borrowing through your SMSF, you can purchase an investment to provide for your retirement. But what should you consider before going down this road? Here’s a brief guide to demystify the process.
Strict borrowing conditions
Taking out SMSF loans is done with a tight set of provisions. It’s important to understand these stipulations before approaching a lender. First and foremost, you can only borrow through your SMSF to purchase a single asset – for instance, a residential or commercial property. This limits the recourse the lender has to that one property, rather than having access to the balance your fund if the loan is defaulted.
The investment also needs to be in alignment with the fund’s overall investment strategy. It’s important to discuss this thoroughly with all members before approaching a lender, and make sure to have strategy in writing – this means you can show your decisions comply with super regulations.
There are a few costs involved in making this kind of investment. A lot like any other investment property, there are upfront and ongoing costs involved. These include, among other things, stamp duty, property management fees, as well as ongoing maintenance to the building. You should ensure that the SMSF has a sufficient balance to make these payments, as well as provide for contingencies. For example, a backup plan for if a member decides to leave the fund or retire early.
Investing in property with your SMSF can be a complicated process, so make sure to have a thorough discussion with your broker before committing.