To discover just how easy the transition can be and what the real benefits are call us on 1300 227 360 or email buypropertywithsuper@capital360.com.au today.

Borrowing to buy property through a self managed superannuation fund (“SMSF”) can be a great way to manage your long term goals towards a comfortable retirement. However, any borrowing by an SMSF to buy a property can be time consuming, complex and unless structured properly from the outset can end up costing your SMSF more money than is necessary and possibly making the SMSF non-compliant.

Checklist – Tips & Traps when buying property with an SMSF:

Timing - it is important that the SMSF Trustee ensures that they have properly set up their SMSF structure – the trust deed and offer document are complying documents and they also have appropriate powers for owning direct property and the SMSF’s investment strategy is clearly defined to include real property;

Trust work - before any assets are placed on trust by the SMSF trustee, the SMSF Trustee must ensure that the trust itself is properly constituted, which is generally known as seeding a trust. The SMSF Trustee must ensure that this is completed properly, otherwise more stamp duty than necessary can become payable by the SMSF Trust;

Lending - before embarking on any property purchase SMSF Trustee’s should look at their funding needs and associated costs. The SMSF Trustee must be capable of making the loan payments for the lending arrangement. This is important so they do not breach their SMSF trust deed covenants or lender’s terms;

Constituent Documents - before acquiring a property the SMSF Trustee must establish a trust structure that allows for legal title to the property transfer to the SMSF Trustee upon full payment of a loan without legal and/or tax implications triggering. Therefore, it is important that the SMSF Trustee get its legal structure right from the start to mitigate such implications to the extent possible;

Lender Matters - the SMSF Trustee has the task of identifying a lender to approve and ensure that the SMSF trust deed and bare trust structure meets the lender’s requirements.Further, in accordance with superannuation law, your lending arrangement must be on a limited recourse basis (this means the lender’s rights are limited in the event of default to recourse to the property; thereby ensuring the SMSF’s other superannuation assets are excluded to any claim made by the lender). The important point here is the terms are limited in recourse – given some lenders will seek to obtain personal guarantees from members of the SMSF which are not so limited in recourse. Check your documentation carefully and get proper legal advice;

Property Management - the rent from the property will be paid directly to the SMSF (sometimes from a property manager – Capital 360 can manage this for you). The SMSF can make loan repayments to the lender according to the lending terms and can deal with their property how they like, as you can deal with ‘normal’ investment properties (e.g. lease, repair, or sell them). The SMSF can pay out or reduce the mortgage depending upon the terms of the loan terms with your lender. This is an important point so if you wish to make additional payments check this documentation carefully.

Exit Strategy - Finally, you may wish to sell your property and move to the retirement phase of your life or hold your property but pay out your lender and you will need to get professional advice.

For more information about setting up an SMSF or purchasing property with your SMSF please contact Capital 360 today. To discover just how easy the transition can be and what the real benefits are call us on 1300 227 360 or email buypropertywithsuper@capital360.com.au today.