For many years now, Self-Managed Super Fund (SMSF) members have been able to invest in residential property, when they follow strict guidelines.
The first step is to have a discussion with a qualified expert to determine whether investing through an SMSF is the most appropriate approach to property investment given your personal or business circumstances.
If it is, the next step is to set up the SMSF, this should be done using the services of a qualified specialist. Make sure you have this in place before you start looking at an investment property to buy, as the contract must be in the trusts name.
Also, be aware that rolling over any existing super into a SMSF may take up to 4-6 weeks to process, so build in time for this to occur.
If you need a loan to buy the investment property, you will need to establish a bare trust as that is what the lender lends the money to, the purpose of this trust is to allow a Limited Recourse Borrowing Arrangement (LRBA) to occur.
This means, should you hit unexpected difficulties and are unable to make repayments, your lender can only access the assets that the loan is against.
When purchasing, it is highly recommended you set a longer than normal finance approval period, a minimum of 21 days due to nature of the loan structure.
What can you purchase?
There are two main simple rules of buying residential investment properties.
· You or your relatives cannot rent or live in the property.
· The property can be maintained but not improved upon.
The investment property can be a house, an apartment or townhouse, or any other type of residential property a non-SMSF investor might consider.
Here are also two main simple rules with commercial properties.
· The premises can be rented to the funds owner ‘at arm’s length’
· All rents must be, at a comparative commercial rate and paid to the fund.
An important note, is to beware that there are costs in establishing and maintaining your SMSF, as well as subsequent fees and charges involved in the purchase of the investment property.
Should you consider taking the next step contact Bright Capital Finance to help you find the professionals to take you on this journey.