Superannuation fund loans

The Superannuation Industry Supervision Act 1993 (SIS ACT) was amended in September 2007 to allow super funds to borrow to invest in any asset they are normally allowed to acquire, including property. This enables Self Managed Super Funds (SMSF) to purchase real estate without sufficient funds to complete the purchase outright, as well as take advantage of the same gearing options available to regular property investors. Full details are available in section 67(4A) of the Act.

Invest through a self-managed superannuation fund

For assistance matching your needs to the right finance product, or to talk to a finance broker about the loan that is in your best interest, simply fill in the form below or call anytime on 13 LOAN (direct on +61 2 9249 3739).

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How a SMSF purchases a property

You can now choose any kind of property including residential, commercial, retail, and holiday units for a property leveraged investment. Be aware that the SMSF can only purchase property from a member or related entity for business purposes – any residential property must be purchased from an arm’s length vendor. From there:

• The SMSF obtains a loan approval.
• The SMSF’s own lawyer / conveyancer acts on the purchase in the ordinary way. The purchase MUST be in the name of the Property Trustee.
• The SMSF pays the deposit, the balance purchase money (less the amount borrowed), the legal costs, and stamp duty.
• On completion of the purchase, the Property Trustee mortgages the property to the lender.
• SMSF then manages the asset in the same way as any other real estate investment.

How a SMSF leveraged property investment is structured

• The legal owner of the real estate will be the Property Trustee.
• The beneficial owner of the real estate will be the SMSF.
• The lender has no recourse to the other assets of the SMSF, providing the SMSF with absolute protection for its other assets.
• Borrowing by SMSF trustees to acquire assets is permitted only as long as the loan is “limited recourse” – that is that the lenders rights against the SMSF trustee for any default action is limited to the asset only. No personal guarantees are permitted UNLESS the borrowing is structured such that there will never be any call on the SMSF assets. If the loan defaults then the security property will be sold to recover the outstanding loan amount, any capitalised interest, and reasonable fees and costs associated with the sale. The lender is generally unable to call upon other assets if there are still funds outstanding after a forced sale.
• SMSFs can deal with the property however and whenever they like, in the same way as investors deal with investment properties (eg: lease, renovate, repair, or sell), subject to the terms of the relevant loan and mortgage. Note, you may not be able to complete major building works and renovations.
• All rents are paid direct to the SMSF.
• Loan repayments are made in the ordinary way from the SMSF.
• The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).
• When the mortgage is paid out in full, title to the property can be transferred to the SMSF or the Property Trustee can continue as registered proprietor.

Laws governing SMSF leveraged property investment

There are a number of laws governing SMSF leveraged property investment which you need to understand prior to committing to any loan products. While they may appear complex, professionals who are properly accredited in SMSF leveraged property investment transactions can readily assist you in understanding and abiding by these laws.

How to acquire a SMSF leveraged property investment

Loans for SMSF leveraged property investments are available through a number of lenders in Australia. Loan terms and features, including interest rates, LVRs on residential or commercial securities and the loan term and amount, will vary widely between lenders. Talk to your SMSF leveraged property investment accredited mortgage broker about your options. As a general rule, the following steps will occur:

1. Establish or review SMSF
2. Establish the Property Trust Deed
3. Instructions to Solicitors/Conveyancers
4. Obtain loan approval
5. Contracts exchanged
6. Loan documents issued
7. Settlement

Disclaimer

This information is provided as a general guide only and is not advice or a recommendation to enter into any transaction, and is subject to the final terms as set out in final documentation from your lender. Loan Market makes no representations as to, and accepts no responsibility or liability for, the accuracy or completeness of the information. Loan Market and its affiliates do not purport to be, legal, tax, accounting, financial or regulatory advisors in any jurisdiction. Loan Market acts neither as an adviser to, nor owes any fiduciary duty to any recipient of this information.

Prior to entering into any proposed transaction, you should independently evaluate the risks of such a transaction and your ability to assume such risks from your adviser.

For more information on superannuation fund loans

For more information on investing through a self-managed superannuation fund, or the investment loan that is in your best interest, talk to your local mortgage broker and we will return your enquiry within 2 business hours. Or call us at any time on 13 LOAN or direct on +61 2 9249 3739.