Property in Super - Borrowing

There's a lot of general interest in the concept of purchasing a residential investment property inside superannuation, particularly over the last couple of years when the stockmarket has given the roller coasters at the theme parks are run for their money.

To add to the enticements of an investment that most people feel they understand (at least they can see it), and that has been fairly stable for decades, the banks have been working on developing options whereby a super fund can borrow to buy.

A few quick pointers:

• This is only an option if you have a Self Managed Super Fund (SMSF)
• On average you can borrow about 70% of the value of the property so you need a balance in your super fund of at least 30%.
• You need to contribute enough to your SMSF to ensure that all the expenses and the mortgage repayments can be met.
• If something goes wrong the bank will only be able to sell the house in question to recoup their funds. These loans are set up as 'non-recourse' and prevent access to other assets the super fund may have.
• It is possible that if you have enough funds outside super, that you can be the lender to the super fund, but the same rules apply to you as to any other commercial lender. 
• Your SMSF will own the property - not you.
• Your fund is required to hold its assets solely to provide a retirement income and is, generally speaking, unable to provide any current day entitlements. This means that no-one in your immediate or extended family, or who is in any way related to you, will be able to use the property.
• There can also be issues with renovations/repairs whilst the property is funded through borrowings.

Let me know if you're thinking about getting into an investment property in super, or you already have one and would like to chat about any concerns you have.

Kerrianne Hebinger

Financial Planning Essentials

e: fpe@finplans.com.au

w: http://www.finplans.com.au/