Since 2007 the rules regarding a self managed super funds buying property have been relaxed enabling a self managed super fund i.e. SMSF to borrow funds to purchase a property, this can be either for a residential property or commercial property.
There are rules of what you can do and can’t do when investing through a SMSF. In general terms, you and fellow members of the self managed super fund or relatives can’t live in a property bought by a SMSF.
However you can rent a commercial property that has been bought by your SMSF.
The other main difference regarding a self managed super funds buying property is the loan arrangements are different as follows:
· The SMSF loans are what is called a limited recourse loan. What this means the lender has a limited call on the assets in the SMSF if there is a default on the loan, the limit is set to the asset the loan is secured against. So the lender can’t touch any of the other assets belonging the SMSF.
· The interest rate is often higher for a self managed super funds buying property and depending on the lender the SMSF will require a minimum deposit of 20%.
· Not all lenders will provide SMSF loans, so there are limited options in the market.
The other things to consider most lenders will not consider new properties for a SMSF loan, it needs to be established property with a comparable rental properties in the surrounding area.
Also a SMSF can’t buy land then construct a building, it needs to be a single contract purchase with a deposit payment and the remainder at settlement. With land and house construction usually it consists of a land contact and a building contract.
Additionally, most building contracts also has several progress payments made through the construct phase.