What restrictions are in place for SMSF loans?

Considering a self managed super fund loan? There are all sorts of benefits – but what exactly can you do with an SMSF, and what are the limitations to making a property investment of this type?

Can I build a property with my SMSF loan?

Unfortunately, an SMSF loan cannot be used to fund a building project. The reason for this is that rules governing SMSF loans (the SIS act) only allow trustees to buy “a single acquirable asset”. When you attain financing for a construction project you are actually getting two loans – one for the land, and one for the building cost. You should also keep in mind that you cannot use an SMSF loan to purchase vacant land with the intention to build, nor can you use this loan to build on a piece of vacant land you already own. Further, due to the “single asset” rule, SMSFs can be used for one property only.

Can I use an SMSF loan to undertake home renovations on a property?

As with building a new dwelling on vacant land, this is not permitted, and for the same reason – both a house and it’s maintenance don’t count as a single asset. While buying a house in a mild state of disrepair to do up and resell later is a sound investment plan, an SMSF is not the best loan for this. Fortunately, LRBAs do allow you to borrow for minor maintenance to the property.

How much can I borrow with an SMSF loan?

The maximum loan-to-value ratio for an SMSF loan is 70 per cent. This applies to both residential and commercial property purchases, though there are conditions for each. Redrock offers this loan for residential properties with a low doc option, and doesn’t require a minimum net worth of assets.

Can I live in the property I purchase with an SMSF loan?

You are not able to use an SMSF loan to buy a property you will immediately live in. Generally, the idea is to invest in a property that you will move into after you retire, by transferring the property from your super fund to your own name.

There are a lot of rules, restrictions, and exemptions at play in the self managed super fund loan process, and it can be a difficult process to navigate. That’s why you should enlist a mortgage professional to help you through the process and guide you into your new investment. You can get pre-approval now, just speak to one of our expert brokers today