Self-Managed Superannuation Fund Loans
Tax-structured SMSF property loans to support your retirement goals
Commercial or residential property investing for self-managed super funds
Wondering if your Self-Managed Super Fund (SMSF) is eligible for a property loan? Got questions about the legal requirements of SMSF borrowing? Looking for a trusted broker to guide you through compliance, the SMSF loan application process and strategies to maximise your investment returns?
My Finance Agent has been a trusted loan expert to SMSF trustees since 2014. We work closely with self-managed fund members, as well as their professional advisers, to design and execute tailored lending solutions that support retirement goals.
On this page, you'll find information to answer many of your questions about SMSF borrowing, including compliance and lending requirements. For personalised advice, please contact us to discuss your investment goals and situation.
Keep reading to discover...
Everything you need to know about SMSF borrowing:
Demystifying SMSF loan compliance and eligibility criteria: Discover the legal requirements and regulations associated with SMSF loans.
Differences between SMSF and conventional home loans: SMSF loans differ in some significant ways from conventional home loans that trustees should be aware of.
How to apply for an SMSF loan: Discover the documentation and supporting information you need to apply for an SMSF property loan.
Frequently asked questions: We answer common questions asked by SMSF trustees, including how much an SMSF can usually borrow.
What is an SMSF home loan?
A Self-Managed Superannuation Fund (SMSF) home loan – also known as an SMSF property loan or SMSF mortgage – is a loan that allows individuals to use their SMSF to borrow money for the purpose of purchasing a residential or commercial investment property. Returns, either through capital gains, rental payments or both, are channeled back into the super fund for reinvestment or use during retirement.
Here are the key features of an SMSF home loan:
Borrowing within an SMSF
The SMSF borrows funds from a lender to purchase the property. This allows the SMSF to invest in real estate, designed to provide rental income and/or capital growth.
Security for the loan
The property being purchased serves as security for the loan. In the event of default, the lender has the right to sell the property to recover the outstanding loan amount. However, via a legal structure called a Limited Recourse Borrowing Arrangement (LRBA), the lender's recourse is limited to the property itself and not the other assets of the SMSF. (Read more about LRBA below.)
The property is held in a separate trust, and the SMSF holds a beneficial interest in the property. The SMSF trustees have a duty to manage the property and use the income generated (e.g., rental income) for the benefit of the fund and its members.
Repayment and expenses
Repayments of the loan and other property-related expenses, such as maintenance and insurance, are funded through the SMSF's income and resources, including rental income generated by the property.
Compliance and regulations
SMSF home loans must comply with strict regulatory guidelines set by the Australian Taxation Office (ATO) and other authorities to ensure adherence to SMSF borrowing rules and regulations.
It's important for fund trustees considering an SMSF home loan to thoroughly understand the regulatory requirements, as well as potential risks and benefits. Working with an experienced SMSF loan broker can provide that peace of mind.
SMSF home loans differ from conventional home loans
There are many similarities between conventional home loans and SMSF property loans. However, there are also significant differences. With an SMSF loan, the benefits of certain legal protections are achieved through complex compliance and reporting obligations.
SMSF loans must adhere to a legal framework called a Limited Recourse Borrowing Arrangement (LRBA).
What is an LRBA? The distinctive feature of an LRBA is that the lender's ability to recoup their funds is limited to the asset used as security for the loan.
Setting up the LRBA is a legal process where a separate trust and trustee (referred to as a custodian) is established for the property in question. This trust is required to have its own trustee company in addition to the SMSF’s overarching trustee arrangement.
What does this mean in practical terms? Imagine for a moment that the SMSF cannot make their loan repayments... With an LRBA, the lender's recourse is limited to repossessing only the property in question. This prevents the lender from claiming against other assets held by the fund.
However... It's important to know that lenders can get around this by asking trustees for personal guarantees. When trustees provide a personal guarantee they accept personal financial responsibility if the lender were to makes a loss after selling a property as a result of a default.
Using an experience SMSF loan broker helps to ensure that your financial interests are protected when negotiating with potential lenders and choosing an SMSF loan product.
As your SMSF lending expert, it's our job to make sure that your SMSF loan is compliant. We achieve this by working with other professional advisers to ensure compliance across the following:
Sole purpose test
Any borrowing using an SMSF mortgage must adhere to the sole purpose test, ensuring that the investment is for the sole purpose of providing retirement benefits to fund members or their dependents.
Single acquirable asset
The borrowed funds through the SMSF mortgage can only be used to acquire a single acquirable asset, such as a specific property. This is a fundamental requirement of LRBA.
SMSF loan compliance and regulations
Arm's length transaction
The acquisition of the property using an SMSF mortgage must be conducted on an arm's length basis, meaning the transaction should be similar to what would occur in the open market. In other words, the transaction is conducted as if the parties involved have no personal or business connection with each other, and they are acting in their own best interest.
Loan repayment structure
The loan structure and repayment terms should be compliant with regulations, ensuring that the repayments are made using the SMSF's existing resources, including rental income generated by the property.
Interest rates and terms
The interest rates, fees, and terms of the SMSF mortgage must be commercially reasonable and comparable to what would be offered to any unrelated party in a similar transaction.
Consistency with SMSF investment strategy
The investment in the property through an SMSF mortgage must align with the fund's documented investment strategy, reflecting the fund's risk tolerance, goals, and asset allocation.
Compliance with superannuation law
SMSF loan arrangements must comply with all superannuation laws and regulations, including the Superannuation Industry (Supervision) Act 1993 (SIS Act) and related guidelines.
Audit and reporting
The SMSF, including the LRBA, is subject to annual independent audits by a registered SMSF auditor to ensure compliance and accuracy. The audit report is submitted to the Australian Taxation Office (ATO).
This information is general in nature and was correct at the time of research. Please contact us for tailored SMSF loan information.
When it comes to SMSF investing, we believe in the benefits of a total brains trust approach. We will work closely with all members of your advisory team to make sure you retirement goals are achieved smoothly and compliantly.
Director and finance broker
Will an SMSF loan suit your goals?
I WANT TO...
Use an SMSF loan to construct a new property
No. The SMSF is able to pay for maintenance out of borrowed funds, but cannot use the loan for building.
Use equity in an SMSF property to buy another property
No. Due to limited recourse borrowing, the SMSF cannot use equity from an existing SMSF property to buy another.
Refinance an existing SMSF loan
Yes. You are allowed to refinance an SMSF loan, but cannot release equity or increase the amount you are borrowing.
Sell my home to my SMSF
No. Selling a residential property to an SMSF that you or a related party owns, is not allowed. Commercial property is acceptable.
Live in the property owned by my SMSF
No. A property cannot be acquired from, lived in or rented out to a fund member or any of their related parties.
Sell my commercial property to my SMSF
Yes. Your SMSF can buy a commercial property from a fund member and, if they wish, rent it back to the member at market rates.
How to apply for an SMSF property loan
To apply for an SMSF loan, we will help you to prepare the following documents:
Certified copy of the SMSF Trust Deed
Certified copy of Custodian Trust Deed
Financial information to demonstrate that the SMSF can service the loan (generally, two years SMSF audited financial statements, 12 months SMSF bank statements, and rental estimates)
Full copy of contract of sale
1. Choose trusted professionals to guide you
We can help you and/or your accountant or financial adviser by assessing your situation, investment goals, and eligibility for an SMSF property loan.
2. SMSF strategy and investment planning
We can use our lending expertise to help you develop a comprehensive investment strategy within your SMSF, considering factors such as risk tolerance, diversification, potential returns, plus loan costs, compliance considerations and eligibility.
3. Check SMSF trust deed and investment strategy
We can help you review your SMSF trust deed to confirm it allows for borrowing and property investment. It's important to ensure that the trust deed is up to date and aligns with your investment goals.
4. Establish a custodian trust
We can recommend a trusted lawyer to help you set up a separate legal entity, known as the custodian or holding trust, to acquire the property on behalf of the SMSF.
5. Find the right property
We can help you conduct due diligence on potential properties. We are pleased to provide free property research reports, as well as access to a trusted network of buying agents who may provide you with a competitive edge.
6. Loan pre-approval
We will match lenders who offer SMSF property loans with your needs and, on your behalf, help to prepare and submit application(s) to gain a loan pre-approval. We will compare offers and make our recommendations to you based on a detailed analysis of your needs and goals.
7. Select a lender and finalise loan terms
Once you've selected a lender and found a property, we'll help prepare and submit loan documentation to obtain a formal offer from the lender.
8. Loan documentation through to settlement
We will coordination with your solicitor and other advisors to review the loan documentation, ensuring compliance with superannuation and legal requirements, and making sure that all parties have the information they need for a smooth loan settlement process.
10. Annual reviews
We will review your loan post-settlement to check that your loan is operating as it should. At 12 months, and every year as long as your loan is active, we will conduct a loan review to see if we can improve your loan rate or other terms. We are always looking out for your interests.
Navigating the world of SMSF lending can be confusing and time consuming. Let us save you money, time and stress by doing the heavy lifting.
Differences between lenders are magnified in the SMSF loan space
Three more good reasons why SMSF borrowers should use only trust an experienced SMSF broker:
For a standard home loan there may only a small difference between the rates offered by different lenders. But for SMSF loans the spread in interest rates and fees are generally much wider. In particular, major banks often process SMSF loans via their commercial or business banking departments, which are associated with higher costs — costs we can help minimise or remove.
Get the loan facilities you need
While securing a competitive interest rate is important, other loan features may have a bigger bearing on investment performance. For example, the ability to offset your loan balance is critically important if you have a lot of cash in your SMSF — yet only select lenders provide an SMSF loan with an offset facility.
Opportunities in the niches
Residential investment and commercial loans offered by the major banks are often not as competitive as those offered by smaller banks and building societies. We have strong relationships with these niche lenders because we regularly work with them.
Frequently asked questions about SMSF loans
What sorts of SMSF loan terms are available?
SMSF loans come with fixed and variable interest rate options, and loan terms of up to 30 years. Interest-only payments may also be possible during a portion of the loan period, usually no longer than five years in total. Early pay off, unlimited extra payments, and offset or redraw facilities are other loan features to consider.
How much can an SMSF borrow?
Generally speaking, a Self-Managed Super Fund can borrow up to a maximum of 80% of the property's value. This means that the SMSF needs a minimum deposit equivalent to 20% of the property's value. In terms of loan serviceability, the fund must be able to demonstrate that it has sufficient liquidity (see below) and income to service the loan.
Do SMSF lenders have liquidity requirements?
Some SMSF lenders have strict liquidity requirements, while others have none. Generally, lenders prefer for SMSF borrowers to hold cash reserves equivalent to 10 to 50% of the property's value. For example, for a property valued at $500,000, the lender may like to see $50,000 in cash holdings.
What are the interest rates and loan costs for SMSF loans?
Generally speaking, interest rates for SMSF mortgages tend to be higher than conventional home loans. Please contact us to find out current rates based on your situation and needs. In terms of loan costs, stamp duty and conveyancing changes will apply. Some lenders also charge extra for SMSF loan processing, especially if they process SMSF loans via their commercial lending team.
That's where our expertise comes to the fore. We have excellent relationships with Australia's best SMSF lenders and make it our mission to find you the right product at the lowest possible cost.
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