Can I use super to buy a house?

Yes, it’s possible to purchase property using your super, however purchasing using your superannuation can be a more complex than purchasing in your personal name, is generally more expensive and requires extra planning and a better understanding before you proceed.

To buy a property with your super, you’ll need to set up a Self-Managed Super Fund (SMSF). An SMSF is a fund where you make investment and financial decisions for the fund with the general aim of providing retirement benefits to its members.

Setting up an SMSF is a highly regulated process, and you must ensure the fund follows both super and tax laws. It is highly recommended to get independent legal and financial advice when setting up your SMSF to make sure you understand your responsibilities and that the fund and subsequent entities are established correctly.

Do all banks lend to self-managed superfunds?

Not all banks and lenders offer loans to self-managed super funds (SMSFs), and most major lenders stopped offering these lending products since 2018. However, there are still several lenders in the market that provide SMSF loans, each with their own policies, setup costs, ongoing fees, and property eligibility requirements.

An SMSF property loan can function similarly to a standard mortgage, with interest rates, fees, and charges. Lending products can vary between lenders and it’s best to speak to a mortgage broker to understand the process and existing offerings.

Contact us today to explore different loan options available and their specific requirements.

• You can invest in both residential and commercial properties within an SMSF.
• The property must be purchased for investment purposes only.

“There are specific rules for buying property through your SMSF. The property must:

1. 1. Meet the ‘sole purpose test’ of providing retirement benefits for fund members.
2. 2. Not be purchased from a related party of a member.
3. 3. Not be lived in by a fund member or their related parties.
4. 4. Not be rented by a fund member or their related parties.

If your SMSF buys a commercial property, it can be leased to a fund member’s business, but it must be rented at market rates and follow strict rules.”SMSFs and Property - MoneySmart”

How much deposit do I need?

Deposit Requirements

Generally, lenders will require a deposit of 20% - 30% of the SMSF Purchase price along with additional funds to cover setup costs such as stamp duty, legal, and accounting fees.*Costs may vary based on purchase price, stamp duty and setup costs.

For a $500,000 property, this means you’ll generally need at least approximately $125,000-$150,000 in your super fund as a minimum to get started. The remaining $400,000 can be borrowed to complete the purchase, provided you meet the other lender eligibility requirements.

Liquidity Requirements

Some lenders require a “liquidity buffer” which means you’ll need to keep 5% - 10% of the property’s value in the super fund to cover ongoing costs.

SMSF Structure

The above is a general structure that is common for clients purchasing a property through their SMSF. #https://broker.resimac.com.au/products/resimac-smsf

Cost Considerations

There are several costs and considerations when purchasing a property through your SMSF:

• Upfront Costs: Deposit, stamp duty, legal fees, and possibly the cost of setting up an LRBA.
• Ongoing Costs: Loan repayments, property management fees, maintenance, insurance, and SMSF administrative costs.
• Compliance Costs: Annual SMSF audits and financial statement preparation.

It’s best to discuss with your Mortgage Broker, accountant and legal services about each of the above costs.

Product Restrictions

• Redraw facilities are very common for most lenders that offer products that help with buying a property in super. However there are limitations to these accounts including access to any surplus funds being restricted.
• Very few lenders may offer offset facilities (However you will have limitations on choice of lenders).
• Generally, lenders will offer Principal and Interest repayments, however some may offer interest-only options.
• Rates for SMSF loans are generally higher than standard mortgage rates.

Can you access equity from a property held in an SMSF?

SMSF property loans cannot be refinanced unless it’s done dollar-for-dollar. This means you cannot access or release any accumulated equity in the property, unlike properties held in other structures such as in your personal name or other financial entities.

While this might not seem concerning initially, it’s important to consider the potential limitation on leveraging equity growth.

Borrowing against the increasing value of your properties to expand your real estate portfolio is a common strategy for many investors and this restriction is something to keep in mind when considering an SMSF structure.

Can you do this with a New SMSF?

Absolutely! When setting up a new SMSF with the help of your accountant or financial planner, you can apply for an SMSF loan by demonstrating contributions from your existing retail or industry super fund.

Professional Advice

Given the complexity of purchasing property through an SMSF, it’s crucial to seek professional advice from:

• Your Mortgage Broker
• Financial Advisors
• Accountants
• Legal Professionals

This ensures compliance with superannuation laws and alignment with your long-term financial goals.

SMSF Services

Whether you’re looking to refinance an existing SMSF loan or need finance to buy a property investment in super, our experienced team can source the correct SMSF provider and the right SMSF loan for you.

Relevant Links

ATO: Self-managed Super Funds (SMSF)

MoneySmart: SMSFs and Property

ATO: SMSFs Investing in Property