Australian’s love of property is well documented. To a lesser extent, so too is the increasing number of people who think they can do a better job investing their superannuation than the professionals.
Its therefore not surprising that the number of people using Self-Managed Super Funds (SMSF) to invest in direct property is growing steadily
But before deciding to do this, there are a number of issues that need to be considered.
The Issues With Self-Managed Super Funds.
1. Self-Managed Super Funds Restrictions
SMSFs are not allowed to buy residential property from a member or related party, only from the open market.
Super Fund members or relatives generally can’t rent a residential property from an SMSF because of the in-house assets test. This test imposes a limit on the extent to which SMSFs can enter into lease arrangements and certain other transactions with related parties.
2. Benefit Payments
SMSFs intending to invest primarily in direct property should also consider how they would deal with having to pay out a sizeable portion of the fund’s value. This could occur if a member decides to exit the fund and wants to rollover their benefit.
3. Repairs, Improvements and Replacements.
Before using an LRBA to acquire a property in an SMSF, it’s important to be aware that while the property can be repaired or maintained using some of the borrowed money, improvements can only be funded using cashflow, other fund assets or additional contributions.