Recently, you may have seen that we released a post detailing all of the ins and outs of using your SMSF to purchase a residential investment property.
Well, now it’s time to delve into using your self managed super fund (SMSF) to purchase commercial investment property here in Australia, and similarly to residential, it is so important to understand all necessary rules, costs and any of the risks associated with this in order to ensure everything runs smoothly.
What is a SMSF, and how can I utilise it for property investment?
A quick refresher on SMSFs.
A SMSF is a private superannuation fund, that is managed by yourself, and regulated by the ATO. You can generally have up to six members as part of your SMSF, and they have been known to be quite popular among people who are wanting to have greater control over their savings for retirement.
How to purchase property under a SMSF?
Before purchasing your investment property, you must ensure your SMSF is set up correctly, and is compliant with the regulations outlined by the ATO.
It is also important to create an investment strategy that takes into consideration all elements of this property investment, and then select a property that aligns closely with this strategy.
How does purchasing a residential property through a SMSF differ from commercial?
First and foremost, the main point of difference between purchasing a residential vs a commercial property is that unlike residential property, a SMSF can buy a commercial property from fund members, and fund members can use that asset if they choose to do so.
Of course there is a criteria that this needs to adhere to, and any lease in place between fund members and the property must follow the standard market procedures which includes charging market value rent, and sticking to all terms and conditions of a typical commercial lease.
Considerations to have when making your purchase
- Ensure you have the correct balance for a commercial property purchase. Minimum 20% deposit plus stamp duty needs to be funded by the SMSF
- If you’re borrowing to buy a commercial property, it needs to be under a limited recourse borrowing arrangement (LRBA)
- When you have successfully purchased the property, ensure that you sign the contract in the name of your Trust
Pros and Cons
It is always important to weigh up the pro’s and con’s when considering using your SMSF to purchase an investment property.
Pros
- By investing in property through your SMSF, you are setting yourself up to grow funds for your retirement plan.
- In today’s climate, Real Estate can be a highly valuable investment that can see great return on investment.
Cons
- Specific rules on renting the property to fund or family members through the SMSF.
- If you are found to not be complying with the rules of the SMSF, there will be financial penalties.
Whenever in doubt, contact a professional, as your decision should be based on in-depth research and professional advice about whether this is a wise financial investment for yourself and any other members of your SMSF. For more information get in touch with us.
Let us point you in the right direction and turn your homeownership dreams into a reality.