Due to continued volatility in the markets, people have begun to look at other options for investing their super fund. But since the rules for buying a property with SMSF keep changing, you should consult a tax planner or finance professional before making a decision.
Improved final balance
Suitable changes have already been made in this fund’s lending rules to allow and assist you in buying property in SMS Funder certain conditions. This has helped investors to increase their final balance using this kind of investment in real estate.
Direct investment allowed
It is possible to invest directly in real estate with the new rules. The trustees must, however, prepare a strategy that complies with the current SIS Act. It also needs to clearly mention how the members will benefit from this and the actual purpose behind the investment.
Some key features you should know:
- The fund can buy commercial real estate from a member or a trustee and then lease it. For instance, it can buy your warehouse and lease it back to you for your business.
- It cannot buy a residential home or real estate from a member or a trustee. That is, the fund cannot be used to buy your one home or any other such real estate from you.
- The fund is allowed to buy ‘off the plan’ real estate such as apartments or condos.
- It cannot buy land and construct a home on that block.
- Money cannot be borrowed for improving the home or apartments.
The fund can be used to take loans. But the borrowing is possible under some conditions called ‘Limited Recourse’ arrangement. This loan can be used to buy commercial or residential property. But the investments should be consistent with the rules of fund and its risk profile.
These loans entail considerable costs. The repayments should be done regularly, so liquidity should be maintained. The documents should be drawn up accurately as cancellations are not possible later. Good planning and forward thinking will reduce many risks.
Due to the strict rules, you should consult a professional with experience before taking out a loan with this fund. Once the home value appreciates, the loan will be worth it as your final balance in the fund will increase.