SMSF loans (or self-managed superannuation fund loans) can be used as a way to invest your superannuation in the property market rather than the equity market.
SMSF loans can be used to secure residential or commercial properties. At MortgageWorks, our aim is to equip you with as much information as possible — allowing you to understand the risks, costs, and rules of setting up a self-managed superannuation fund and using it to invest in property.
We’re here to answer any questions you might have. Here are some of our most frequently asked questions to get you set up with some information.
How does a SMSF loan work?
As stated by the ATO, a limited recourse borrowing arrangement (LRBA) involves a self-managed super fund (SMSF) trustee taking out a loan from a third party lender. The trustee then uses those funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.
What are the rules surrounding an SMSF loan?
In order to secure an SMSF loan, your property must:
- meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- not be acquired from a related party of a member
- not be lived in by a fund member or any fund members’ related parties
- not be rented by a fund member or any fund members’ related parties (for residential properties only)
Do banks still lend to SMSF's?
The short answer is yes, they do, but a large number of major institutions have pulled out of lending to SMSF’s in recent times due to the higher level of perceived risks associated. Additionally, the amount of money they lend can vary. Some banks may lend up to 70% of the cost of the property, and many will require the fund to demonstrate the ability to service a higher loan amount when compared with an ordinary home loan.
How much does it cost to run a SMSF?
In 2019, the average operating cost of running an SMSF was $6,450. The median cost was $4,069. This cost will vary from accountant to accountant, and financial planner to financial planner.
How do I get a loan against my super?
In order to obtain a loan against your superannuation, you must have a self-managed super fund.
How much deposit do I need for a SMSF loan?
If you’re looking at purchasing a residential property for your SMSF, generally speaking you’ll need a deposit that’s 30% of the entire value of the property. Plus, an additional 5% of the property value. This covers the costs of finalising the purchase.
Then of course there are questions like:
- How much does SMSF cost per year?
- How much does an SMSF audit cost?
- What are the pros and cons of SMSF?
- Can I use my super to buy a car?
And while all of these questions are subjective, we’d be more than happy to run you through the ins and outs of an SMSF loan, and help you find the best, and most affordable option for you.