expert-q-a

Investors ask: SMSF properties

By Stuart Wemyss

Q. Provided my self-managed super fund (SMSF) trust deed allows for property investment, are there certain types of properties that suit SMSFs better than others? 

A. There are a couple of things to take into account when selecting a property that will be owned by your SMSF. If the SMSF is borrowing (i.e. taking out a mortgage) to assist with this acquisition, then there are a couple of specific issues that need to be considered.

Firstly, the title of the property needs to be reviewed. It is important that the property is all on one title. This isn’t an issue for most houses but may be an issue for apartments, as often car parks and storage units can be on separate titles. If the property does have more than one title and those titles can be dealt with separately (e.g. the car park is on a separate title and there are no laws or owners’ corporation rules that prohibit you selling the car park and retaining the apartment), then these assets will need to be subject to separate borrowing arrangements (i.e. separate loans, bare trusts, etc.). This can become problematic and costly, so it’s best to try and avoid properties of this nature.

Secondly, properties that require renovations to improve the property and properties with development potential may not suit SMSFs. The law states that if your SMSF invests in a property with borrowings and you would like to renovate it to improve its rental income (e.g. new bathroom and kitchen), the SMSF can undertake these renovations, but it cannot borrow to do so. The renovations will need to be funded via a cash contribution from the SMSF. Depending on how much cash and other assets your SMSF holds, these types of property acquisitions may or may not be appropriate.

Apart from the borrowing considerations, there may be additional things to take into account, depending on your strategy. For example, if your strategy is to buy and hold (i.e. you have no plans to sell the property), then higher-yield properties suit SMSFs, due to their lower-tax environment. Commercial properties, for example, are perfect.

However, if your strategy is to sell the property after retirement to allow you to reduce debt, then a high-growth property may suit your SMSF, as you can sell it after retirement (i.e. once your fund is in pension phase) and avoid paying any capital gains tax.
So, the property type somewhat depends on your strategy.

Stuart  Wemyss, Property Tycoon Finance 

Thank you.

Your enquiry has been sent to a local Aussie Mortgage Broker.

We will be in contact with you shortly.
Opps.

error occurred.
Unfortunately Aussie cannot attend to your home loan related enquiry at this stage as you must be a citizen or permanent resident.
Do you need help finding the right loan for your investment?
What Aussie do for you:
  • Give expert mortgage advice to help you find great investment loan deals
  • Help you maximise return by lowering financing costs
  • Save you time and effort by helping with the paperwork
First name
Last name
Location
Mobile Number
Are you an Australian Resident?
promoted stories

Top Suburbs

Highest annual price growth - click a suburb below to view full profile data:
1.
BLUE BAY 49.18%
2.
PAMBULA 43.5%
3.
BERKELEY VALE 42.74%
4.
POINT PIPER 40.52%
5.
NORTH TURRAMURRA 38.12%
Investors ask: SMSF properties
SPI logo