Tuesday 29th August 2023

What is an SMSF loan and how it works?

What is an SMSF loan and how it works?

More than one million Australians have their retirement savings invested in self-managed superannuation funds (SMSF), with these trusts making up almost a third of the nation’s $3.5 trillion superannuation sector.

SMSFs have become more popular as they can provide members with greater control over investments and retirement outcomes than traditional super funds, which can be at the mercy of the share market. They also can offer more flexibility and lower fees than retail or industry super funds.

The trustees of the SMSF have full control over investment decisions rather than a super fund provider managing their retirement savings. Those who are part of the SMSF must ensure it complies with tax and superannuation laws.

The SMSF is allowed to borrow money in order to purchase an investment asset, as long as a strict set of rules are followed. Any residential or commercial property purchased through an SMSF loan must not be lived in or leased to any trust member or related parties.

If you want to use your SMSF to invest in property, an experienced finance broker can help you obtain a specialty SMSF loan through a limited recourse borrowing arrangement.

A broker will advise on what you need to apply for an SMSF loan, which will include a certified copy of the SMSF Trust Deed, a certified copy of the Custodian Trust Deed, at least three years of the SMSF’s audited financial statements, 12 months of SMSF bank statements as well as rental estimates and a copy of the contract of sale for the property being purchased.

To ensure borrowing through your SMSF does not place other retirement investments held in your SMSF at risk, any asset purchased under a borrowing arrangement must be held in a specific holding trust until the loan is repaid.

Get in touch with us today and learn about how SMSF loans work and who provides them. Lenders that do often charge higher interest rates than they would for regular home loans because they are designed for investment.