Borrowing in a self managed superannuation fund to acquire a rental property has been allowed since late 2007. Although there has been a recent amendment to the laws governing the ability of an SMSF to borrow the principle remains.
The key to using your superannuation balance as a deposit on a rental property includes:
- Establishing a self managed superannuation fund (SMSF) with a trusted advisor whom appear to know and understand the issues,
- Rolling over superannuation balances held in industry or retail funds into your newly created SMSF,
- Creating the additional structure that needs to be in place to enable the SMSF to borrow and acquire a property,
- Apply for a loan in the name of the SMSF,
- Find a property
This is quite a simple process, however some of the areas are somewhat specialised and it is not recommended that you leave it to a novice.
The superannuation legislation and regulations governing what you can and can't acquire and in fact what you can do with it after you acquire it. Some of these include:
- An SMSF cannot acquire assets from a member or a related party of a member unless it is business real property (commercial or industrial) or listed securities [therefore no residential property],
- An SMSF can acquire residential property from an arm's-length party but may not lease it to a member or related party of a member,
- An SMSF can lease business real property to a member or a related party of a member,
- An SMSF can acquire units in a unit trust that acquires a property where the other unit holder (i.e. Mum and/or Dad) borrow to acquire all their units. [NOTE: Property in unit trust cannot be used as security],
- An SMSF and an unrelated SMSF (i.e. friends or neighbours) can each acquire equal units in a unit trust and the unit trust may borrow to acquire a property [NOTE Each unrelated SMSF must own 50% or less of the units],
- An SMSF can take out an insurance policy against a member for the value of any loan taken out to acquire a property,
- This list is not exhaustive and there are many other laws that govern this area. See a competent advisor before undertaking any investing with a self managed superannuation fund.