Question

In: Finance

Samuel has heard there is a high-quality apartment that is excellent value. Its sale price is...

Samuel has heard there is a high-quality apartment that is excellent value. Its sale price is $1,600,000; however, Samuel does not have the ready cash to purchase the property. He has a self-managed superannuation fund, with assets of $1,400,000 and with a cash reserve of $200,000.

Advise Samuel on how his self-managed superannuation fund may be able to acquire the apartment.

Expert Solution

Self managed super fund (SMSF)

Self managed super fund (SMSF) benefits its members upon retirement. The main difference between SMSFs and other super funds is that SMSF members are also the trustees of the fund. It is the private superfund to manage ourselfs and the funds usually established by an individual or family as a means of looking after their own super savings. All members of an SMSF are trustees and are responsible for investment decisions and compliance with super and tax law.

You can only buy property through your SMSF if you comply with the rules.

The property must:

meet the 'sole purpose test' of solely providing retirement benefits to fund members
not be acquired from a related party of a member
not be lived in by a fund member or any fund members' related parties
not be rented by a fund member or any fund members' related parties

If your SMSF purchases a commercial premises, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules.

What an SMSF property can cost you

SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.

Find out all the costs before signing up. Costs include:

upfront fees
legal fees
advice fees
stamp duty
ongoing property management fees
bank fees

Beware of fees charged by groups of advisers who recommended each other's services. It is important to get independent advice. Anyone who gives advice on an SMSF must have an Australian financial services (AFS) licence. ASIC Connect's Professional Registers will tell you if the company or person holds an AFS licence.

Can I buy property using a self-managed superannuation fund ?

we can use self-managed superannuation funds to buy residential and commercial property with a SMSF loan. Its possible to borrow money to buy property using a self-managed superannuation fund, or SMSF.

With a SMSF loan you can:

Plan your retirement on your own terms
Choose an investment to suit your lifestyle and investment goals
Gear into property by borrowing within a Self Managed Super Fund

SMSF loan terms and features will vary between lenders - including interest rates, Loan to Value Ratios on residential or commercial securities and the loan term and amount.

Securing an SMSF Loan

The process of securing an SMSF loan will normally follow these seven steps:

You'll establish or review your SMSF
Work out the Property Trust Deed
Give instructions to solicitors, conveyancers
Get your loan approved
Exchange contracts
Your loan documents will be issued
Settlement.

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