Superannuation Investment Property Guide: Borrowing & Restrictions on Investments

Superannuation Investment Property

When it comes to a superannuation investment property, there are a lot of rules and regulations that you must follow. First, you will need to hire professionals to help you set up a bare trust structure with a corporate trustee to be able to invest in a superannuation investment property. From that point on those who are involved in the self managed super fund can invest in commercial or residential property. It is important to note that neither the trustees or related parties are allowed to live in the property or use it occasionally. It must be used as an investment to benefit the super fund.

There are some key points you need to know about investing in property for your superannuation. There are strict penalties in place if these rules are broken, some penalties may include disqualifying you as a trustee. The best way to avoid any of these penalties, is by talking to an SMSF professional to make sure that any investment you make in a superannuation investment property is within the law.

One of key rules is that you must have a bare structure in place to be able to facilitate the loans. The reason for this is so you can keep the title until the investment property loan is paid off. All of the property related costs can be paid by the self managed super fund and the SMSF can also receive rent payments. You are allowed to only own one superannuation investment property.

You can borrow funds from the bank, trustees, or both if needed. A limited recourse loan is the type of loan a bank can loan an SMSF. Should this loan default the bank cannot touch the other assets of the SMSF. With a member guaranteed loan, most banks will loan up to 80% on residential properties and 70% on commercial properties. Trustees can also personally loan to the SMSF so you can do it without the bank. Most trustees prefer to borrow from the bank personally then lend to the SMSF which makes the paperwork a lot easier. These are just a few things that you should know before investing in property with your SMSF.

Now when borrowing money, your circumstances are pretty limited. Borrowing money is only allowed for a maximum of 90 days. You also cannot borrow more than 10 percent of your funds total assets. You can only borrow money for a maximum of 7 days if you need to cover the settlement of security transactions and it too cannot exceed more than 10% of your funds total assets. A trustee can, however, set up a borrowing arrangement to buy a single asset that can be held in a separate trust entirely. Any investment returns earned from this said asset go into the SMSF trustee directly.

Last but not least, let’s cover restrictions when it comes to superannuation investment property. Any investment made by your SMSF must be made on a commercial basis meaning that the purchase sale and price of the asset should clearly state the real market value. This also means that any income from this asset must also start the true market rate of return clearly. When it comes to restrictions it’s pretty simple, you can’t buy assets from other SMSF member and you can’t lend money to other SMSF member or related people.