The Challenges of Property Investing with an SMSF

 In Financial-Advisor

Have you thought about investing in a property? Before you start browsing real estate

sites, you should slow down and consider your options. Instead of investing money out

of your own pocket, you could look at utilising your Self-Managed Super Fund.

Using your SMSF to purchase a property can be a smart investment, if it’s right for your situation.

SMSF- What’s Involved with an SMSF

From the Australian Taxation Office

Property Regulations and SMSF

Different Properties Have Different Regulations.

Choosing to invest in a property using an SMSF is not always an easy process. There are

a lot of regulations that you need to consider and understand. Failing to comply with

these regulations could result in penalties and fines.

Hopefully, this does not scare you off from investing in a property within an SMSF. Using your SMSF to purchase a property can have its

own advantages – such as tax.

So, what type of properties can you purchase within an SMSF? Actually, you can invest

in many types of property – including residential, commercial, and industrial

properties. The challenge is that they have their own regulations and guidelines. This

is where part of the challenge with investing in properties using an SMSF comes from.

Residential Properties

When looking at residential properties, there are some restrictions to consider. Using

your SMSF, your investment must meet the sole purpose test. It is an easy test to pass –

it really just means that your fund needs to be run for the exclusive purpose of creating

retirement benefits for the members of the fund (or to the member’s dependents if the member dies prior to retirement).

There are a couple of other regulations to consider. The property needs to be acquired at an arm’s length transaction. It also cannot be rented or lived in

It also cannot be rented or lived in by a member of the fund or any other family members.

Basically, you need to keep it outside of the family, and with an arm’s length. Actually, the restrictions go even

further. You cannot purchase a home from an associate. Generally, you would think this

refers to a business partner, but in the eyes of the law, it could include friends and

casual acquaintances.

Commercial and Industrial Properties

Some of the same rules for investing in a residential property apply to investing in

commercial or industrial properties. The property must still meet the sole purpose test.

The major difference is that with a commercial or industrial property, your business could potentially rent the

location from your SMSF, as long as it is rented at its current market value and no concessions are made on the rental amount or terms.

Do You Need to Borrow Some Money?

You do not always need to have sufficient capital in order to buy an investment

property. You can seek a loan from a bank or other lender, through a limited recourse

borrowing arrangement. Though, you will face even more restrictions – for example, whether you can make repairs or improvements on the property. If you borrow under a LRBA, you can make payments to repair or for maintenance, but not make improvements on the property. An example of a repair is restoring a damaged portion of the property or building, whereas an improvement which wouldn’t be permitted is a full renovation or extension of a further bedroom.

Be Wary of So-Called SMSF Property Specialists

You should always use caution when making an investment. This especially applies to

any investments through your SMSF. After all, you are playing with your future. Be on

the lookout for so-called property specialists. These individuals often have an interest in

the property that they are trying to push onto you.

If you think investing in properties using your SMSF may be right for you, think about contacting a licensed professional. An SMSF specialist

can help you navigate the hurdles involved with using an SMSF to invest in properties.

Property Investing doesn’t have to be hard work. Give us a call.



Australian Taxation Office Super – Self-managed Super Funds

See Also:

Balancing Income and Growth with Your Investments

Should I invest in property or shares?

Discover the Power of Self-Managed Super Funds


Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Synchron Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Mirador Wealth Management, Synchron, nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information. Authorised Representatives of Synchron AFS Licence No. 243313

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