If you have a Self-Managed Super Fund (SMSF), you can apply for an SMSF loan to buy a residential or commercial investment property. The returns on your investment – whether through capital gains or rental income – are returned to the super fund, which can increase your retirement fund.
Take note that all your investments should be in the best interest of the fund and adhere to the laws and policies surrounding SMSF loans. Hence, you should choose a property that will provide a regular income stream and potential capital gains.
Below are the basic features of SMSF loans:
- SMSF holds a beneficial interest in the property
- Any money received will be funneled back to the fund
- The security trust holds the legal title
- The lender has restricted recourse only to the mortgaged property
- The legal title is transferred to the SMSF when the property has been totally paid off
How Much Can You Borrow with SMSF Loans?
Lenders will generally limit your SMSF loan to 70% loan to value ratio (LVR) of the property value for commercial SMSF loans, and up to 80% LVR of the property value in some cases for residential SMSF loans, or if you have stable and regular cash flow and you already have other assets. To determine how much you can borrow through an SMSF, you should consult a professional SMSF mortgage broker.
SMSF Home Loan lending Rules
Standard home loans cannot be drawn from SMSF as law limits the lender from taking a recourse against the other assets when you default on the SMSF loan and the SMSF lender needs to sell the property. However, the SMSF lender cannot file any claims against your other trust assets because the SMSF loan is secured against the residential property.
The government regularly changes the rules around superannuation generally, and Self-Managed Super Funds in particular. In addition, banks and lenders are constantly changing SMSF lending policies so caution is advised and working with an experienced SMSF broker.