Anna Oudendijk
Anna Oudendijk

Financial Adviser


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What you need to know about mixing SMSFs and property

Investing in property through a Self-Managed Super Fund (SMSF) is a popular option for many people. However, recently tightened bank lending and increasing ATO regulation have made this harder.

Here are the key points to be aware of:

  • Residential Property: It is possible to acquire residential property in your SMSF, but it’s important to note that you, any other trustee, or anyone closely related to the trustees cannot live in or rent the property, nor can you acquire a residential property from a family member or related party. This is because any SMSF investment must satisfy what is known as the sole purpose test, which is to only provide retirement benefits for its members.

  • Commercial property: On the other hand, it is possible and can be an attractive option for business owners to acquire their business premises through their SMSF. This allows you to pay market rate rent directly into your SMSF, building your retirement savings.

  • Funding a property purchase in your SMSF: Often SMSFs do not have enough funds to purchase a property outright, so it is possible to borrow to fund a property purchase using a limited recourse borrowing arrangement (LRBA). This structure allows the property to be paid off over time as rent is received and further contributions are made to the SMSF.

  • Improvements to your property: If you want to make improvements to the property in your SMSF, you can’t borrow to do so. This means that undertaking a residential renovation/flip strategy within your SMSF is difficult unless your SMSF already has the funds to pay for the renovation or you have capacity to contribute the renovation costs to your SMSF.

What else to look out for?

  1. There can be substantial fees and charges associated with the purchase, ownership, borrowings and subsequent sale of a property in an SMSF. These costs will eat into your super balance, so you need to ensure the income in the super fund will cover these costs and allow for growth.
  2. If you need access to funds, it’s hard to make an investment property liquid quickly. You can’t just sell one bedroom if you need to access funds in a hurry.
  3. Property spruikers often use pressure-tactics to talk trustees into making off-the-plan property purchase decisions for an SMSF. They may employ tactics like taking you out to free meals and offering to pay for your airfares to sales meetings. Typically, off-the-plan apartments are not great value investments, hence the hard sell.

If you’re considering establishing an SMSF to facilitate an investment property strategy, talk to a financial adviser and make sure the strategy stacks up. A qualified adviser can also ensure you understand the heavy compliance burden that comes with being the administrator of an SMSF before you commit to it.

Find out how FMD's SMSF Administration Service can assist

General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.