How to Buy an Investment Property Using Your Super – Part 1 First things first, only you’ll need a Self-Managed Super Fund (SMSF) if you want to buy and investment property with your super savings. Borrowing money can have several benefits for people with an SMSF which make it well worth considering. However, you need to be careful because there are also risks whenever you borrow money to invest as loses will be magnified.
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Limited Recourse Borrowing Arrangements (Lrba) The Superannuation Industry (Supervision) Act generally does not permit borrowing. However, since September 2007, SMSF Trustees are permitted to borrow money to spend on specific investment assets. In July 2010, the Act was amended to clarify how this exemption works. A further clarification was issued in 2012, specifying the terms of both borrowing for repairs and improvements, and the type of assets for which the borrowed money could be used. An SMSF is permitted to borrow funds to purchase assets subject to these conditions:
Beneficial ownership The asset acquired by the SMSF must be held in a Trust, with the SMSF being the holder of the beneficial interest in that asset. This means that the legal owner registered on the title deeds will be what is known as a ‘bare trust’ or a ‘custody trust.’ These requirements can complicate the acquisition of assets for an SMSF and it is crucial, therefore, that all the necessary required steps are taken before committing to this form of investment strategy. Professional financial advice is required.
Legal Ownership It must be understood that the beneficial owner of assets is the Trustee of the SMSF. Once the SMSF has this beneficial interest it then has the right to assume legal ownership of the asset, providing all borrowing used for the purchase has been fully repaid.
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