Unlocking the Power of SMSF: Things to Know for Property Purchasing

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As we have entered the third decade of the 21st Century, individuals and companies have several lucrative options to invest their hard-earned money. However, the brick-and-mortar investment is still considered the safest. To some extent, it’s true, as there is a never-ending rise in property prices in Australia every year. However, it’s not that easy as there are several traps one has to be vigilant about to make the most out of their investment in real estate, especially when purchasing property within SMSF.

Since it has become possible for SMSFs to borrow to fund a direct property purchase, it has gained popularity in recent years. Here are a few things to consider for property purchasing within SMSF.

Residential Property

The trustee, other partnered trustees or anyone related to the trustees must not have lived in the property purchased through an SMSF. They also cannot rent the property, which means buying a beach house through an SMSF and living there during vacation is not permitted. Furthermore, you cannot use the existing residential investment property for SMSF, either by contributing to it within the cap limits or by way of the fund purchasing it at market value.

Commercial Property

Compared to the investment in residential property through SMSF, investment in commercial property through SMSF has more advantages.

A member of an SMSF can sell or lease their commercial property to the SMSF. The property can also be leased to SMSF trustees or businesses, or individuals related to them.

Investing in commercial properties through an SMSF is not just for small business owners; it’s accessible to all SMSF trustees. If you’re considering buying a commercial property for your SMSF, you can explore getting an SMSF loan. However, it’s essential to know that the eligibility criteria for this type of lending are stricter compared to conventional loans, with more stringent loan-to-value ratios. Staying informed is crucial for making wise investment choices.

In addition, the investment in commercial property through SMSF must also comply with the overarching function of the SMSF, which is to deliver retirement benefits to the members.

Never Hesitate to Seek Professional Help

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