The allure of having control over your superannuation and how it’s invested, has made Self-Managed Super Funds a popular choice. But if your SMSF needs to borrow money to purchase an investment, SMSF lending is a complex and time-consuming process.
And the fact that many lenders have recently stepped away from SMSF lending altogether, makes having an experienced broker who understands the market, and the process, that much more important.
Having an SMSF means you decide how your fund is managed and you control where your money is invested. Plus, you have a broader range of investments to choose from:
There are many reasons for purchasing a property using your SMSF. A residential investment property can lead to capital growth so that when the property is sold, you’re left with more money in your retirement. Alternatively, it may be a property with lower growth potential but a high rental yield.
If you’re self-employed and renting a commercial premises for your business, you can use your SMSF to purchase a commercial property and have the business rent the property from the super fund. This increases the amount you’re contributing each year without breaching any contribution caps, it continues to be a tax deduction for the business and an income producing asset for the super fund. It ticks all the boxes.
We can’t stress enough just how complicated SMSF lending is. That’s why we work with your accountants and financial planners to ensure using an SMSF is the right strategy for you.
We also like to make sure that all your bases are covered, minimising your risk. For example, if your super fund needs to borrow money for a purchase, establishing a bare trust (also known as security trust) is mandatory. Known as Limited Resource Borrowing, this structure allows the super fund to borrow the money, while the bare trust owns the asset until the loan is fully repaid.
At this point, ownership of the asset is transferred to the super fund. In the event of a default, the bank can only pursue the single asset, no other assets held by the super fund such as cash, shares or other properties.
But it’s important to know that banks usually seek personal guarantees to protect themselves in the event of a default.
There may be benefits to establishing an SMSF but also many risks and considerations you need to understand before making a decision. We’re here to help, along with trusted financial advisers to determine whether an SMSF should be part of your wealth building strategy.
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