Property Investment with Self Managed Super (SMSF)

SMSF’s are becoming an increasingly popular way for people to take control of their Super. Primarily the most important issue for most people who choose to run a SMSF is the level of choice and control they can exercise over the investments in the fund. A SMSF may be able to borrow to acquire a residential investment property providing the following conditions are met –
  • The borrowed funds are used to purchase a ‘Single Acquirable Asset’; (e.g. established or recently built property).
  • The SMSF must comply with all other relevant Super laws for example the ‘In House Asset’ restrictions;
  • The asset must held on trust for the SMSF by another entity; (known as a ‘Bare Trust’).
  • The SMSF must have the right to acquire legal ownership of the asset by making payment.
  • The lender’s recourse against the SMSF must be limited to the underlying asset (ie the purchased property).
  • The lender must not have a right of recourse against other assets of the fund. The lender does not necessarily need to be a bank, a number of options are available including the ability to borrow from personal funds.

Where a fund invests a significant portion of its assets in real property, the trustees must ensure that the funds level of investment in direct property is in line with the fund’s investment strategy, including diversification of assets, liquidity, and maximization of member returns in the fund.

How does a SMSF purchase a property?

Our example below provides a basic overview. Seek advice before making decisions on your Super. Once your SMSF is setup, we can assist with finding the right property suitable for the funds budget.
SMSF Diagram Investment Property

SMSF Investment Property Example

Assumes Purchase Price of $500,000

BANK
The SMSF will get a loan. Lets assume a deposit of 30% is paid and the balance is borrowed from the bank. $150,000 deposit | $350,000 loan.Repayments at 6.5% are $22,750 per year.

EMPLOYER
Pays the 9.5% Super contributions into the SMSF. Let’s assume members of the fund earn a combined $150,000 per year. That means super contributions of $14,250 per year.

TENANT
The SMSF receives the rent paid by the tenant. Lets assume $475 per week or $24,700 per year.

EXPENSES
The SMSF will be responsible for the costs of running the property. Lets assume 1% of the purchase price per year for rates, insurance, property managers fees etc. In this case $5,000 per year.

Property Investment SMSF Property Cashflow

This cash flow is a guide only and will vary on your circumstances.  Please get in touch for a personal analysis of property for your SMSF.