The Mortgage Agency
SMSF Loans
Self-managed super funds (SMSFs) are an enticing choice for Australians who want to take control of their retirement savings. In particular, the option to apply for a self-managed super fund loan to invest in property is an especially exciting opportunity.
An SMSF loan can provide you with the finances to buy a new residential or commercial investment property that you might not have been able to purchase otherwise. This gives you more opportunities to build your retirement fund and secure your future.
At The Mortgage Agency, we believe everybody has the right to a loan. Our experienced brokers will provide personalised support to help you secure an SMSF loan that aligns with your needs. As a nationally accredited partner of multiple leading lenders, we have the expertise to get your loan application over the line and help you grow your nest egg.
Want to learn more? Book a discovery session with our Director Tony Xia today, or call The Mortgage Agency on 0423 718 612. We’ll be on hand to answer any questions you may have.
What Is A Self-Managed Super Fund (SMSF)?
A self-managed super fund (SMSF) is a private super fund that you manage yourself. It allows you to control your retirement savings and decide how to use them.
You can set an SMSF up either as an individual or a family (up to a maximum of six members) . Each member of that super fund must have a unique Australian Business Number (ABN), bank account, and Tax File Number (TFN). In addition, every SMSF will need to appoint a trustee who will take authority over investment decisions and financial management.
Know that there are rules and regulations surrounding how you use and maintain your fund, so it’s important to know what you’re doing and seek guidance from an experienced licenced adviser.
For instance, as you’re entirely responsible for how you use the money, you’ll need to ensure you comply with tax and super laws. You’ll also need to ensure your SMSF has sufficient funds to cover the purchase price, stamp duty, legal fees, and any ongoing fees before you invest in a property.
If you’re looking to invest but don’t have the money in your SMSF to buy the property outright, a smart way to secure the funds you need is by taking out an SMSF loan.
What Is An SMSF Loan?
An SMSF loan, or limited recourse borrowing arrangement (LRBA), is a loan that allows your SMSF to borrow money to invest in a commercial or residential property that you may not have been able to purchase outright.
When your fund takes out an SMSF home loan to buy a property, that property will be held in a custodian trust until you repay the loan. You’ll then make monthly payments to pay back what you owe, accounting for any added interest. Know that your SMSF can only purchase one asset with the loan, and you’ll need to identify that asset before you apply.
As SMSFs are heavily regulated, you’ll need to comply with rules set by the Australian Taxation Office (ATO). For instance, as the SMSF trustee, you must be able to prove that your investment serves no purpose other than to provide retirement income.
That said, if you work with a reputable provider that can offer you expert guidance, SMSF lending offers an excellent way for you to grow your retirement fund through smart investment opportunities.
What Are The Benefits Of SMSF Loans?
Tax Advantages Of Borrowing Within An SMSF
An SMSF loan offers numerous tax advantages. For instance, upon retirement, you may be able to reduce your fund’s interest and tax liabilities via deductions or successions.
Potential For Higher Returns On Investment
An SMSF loan enables you to purchase an investment property that you may not have been able to invest in otherwise. This can lead to higher returns, especially if a property can also be used to generate rental income.
Diversification Of Investment Portfolio
SMSF loans are one of the most practical ways to diversify your investment portfolio. They allow you to spread risk across multiple properties and could increase the likelihood of consistent, stable returns.
Long-Term Wealth Creation
Once you’ve paid off the borrowed money in full, the funds your property generates will go directly into your SMSF. This offers a long-term return on investment that can supplement your nest egg for years to come.
How Our SMSF Loan Service Works?
Buying an investment property with an SMSF loan is more complicated than your average home loan. There’s a lot to consider when considering SMSF rules and government legislation.
That’s why it’s important to work with an experienced mortgage broker, like The Mortgage Agency, who can make the process easier.
We can help you secure a loan both for residential properties and non-specialised commercial properties. Our service is streamlined and straightforward. To get started, you’ll need to gather the following documents.
- A certified copy of your SMSF Trust Deed.
- A certified copy of your Custodian Trust Deed.
- A copy of the contract of sale.
- Financial information to prove you’re eligible, such as SMSF audited financial statements, bank statements, and rental statements.
Once you’re ready to apply, get in touch with The Mortgage Agency. We’ll answer any questions you may have, review your eligibility, and outline all the requirements you need to meet for the loan.
Then, once you meet the criteria, we’ll help you compare home loans from various lenders and then guide you through the application process. Along the way, we’ll offer personalised advice and walk you through every detail to ensure you get a deal that’s in your best interests.
How Much Can I Borrow?
SMSF loans typically have a lower loan-to-value (LVR) ratio than a traditional home loan, meaning you’ll need to contribute more toward the property than usual.
You can usually borrow up to 60%-80% of the value of the property for an SMSF residential property and anywhere between 50%-80% of the value for a commercial property, depending on the type of security provided. However, this varies from lender to lender.
Eligibility Criteria
Here are some of the typical requirements you’ll typically need to meet for SMSF lending:
- You must have an existing SMSF that is compliant with ATO regulations. For instance, you should keep up-to-date records and have a valid trust deed.
- You’ll need to have enough funds in your SMSF to cover the application fee, plus any unforeseen costs, property maintenance expenses, and some of your loan repayments.
- You must be able to prove that your investment strategies align with your retirement objectives.
In addition, your lender will typically set a loan-to-value limit, meaning you’ll need to pay a deposit on the property. Your lender may also examine your credit history and the property you’re buying to assess your eligibility.
Requirements differ from lender to lender. When you partner with the Mortgage Agency, we’ll offer personalised guidance to help you find a borrowing arrangement that aligns with your circumstances.
Why Choose Us For Your SMSF Loan?
When you work with The Mortgage Agency, we’ll help you through every stage of the SMSF loan process. Our brokers can offer:
- Help to choose the right property for your circumstances.
- Advice on how much money you’ll need to put down as a deposit.
- Analysis of comparison rates to help you find a loan with a low rate.
- Guidance on how much you’ll be allowed to borrow.
- Advice on choosing between a fixed rate or variable rate.
- Tips to improve borrowing power and get optimal home loan rates.
- A strategy to help you secure an SMSF loan that is in your best interests.
Why choose us for your SMSF loan? Here are five reasons we’re the broker you’ve been holding out for:
- Expertise: We’ve been supporting Australian home buyers and investors with reliable, trustworthy guidance since 2011.
- A large network: We’re accredited with multiple lenders and work with an extensive network of accountants, solicitors, and financial advisers.
- Personalised service: We’ll adapt our approach to build a strategy tailored to your unique financial circumstances.
- Efficiency: We pride ourselves on our speed and efficiency. We won’t make you wait six months to secure your funding.
- Safety: We only recommend opportunities that will be best for you. Our experts will tell you outright if a lender isn’t the right fit.
Ready to secure your loan and start investing in property? Book your free discovery call with Tony Xia today. Alternatively, call us on 0423 718 612 for more information. One of our lending specialists will be on hand to talk through your options.
Please note:
- When setting up an SMSF you should ensure you seek proper advice from a licence professional such as a Financial Planner or Accountant to ensure this profit is best suited for you
- All taxation related questions around an SMSF should be advised by your accountant.
Common Questions About SMSF Loans
Interest rates are usually higher on SMSF loans than on regular home loans. This is because SMSF loans are generally considered more risky to lenders because of their complexity. This also means the loan-to-value (LVR) for SMSF loans could be lower, meaning you’ll need to make a larger deposit when buying your investment property.
Not quite. There are several rules and regulations regarding what you can and can’t buy with an SMSF loan. For instance, before you secure residential or commercial property loans, you must be able to prove the loan is for investment purposes only.
You cannot intend to live in the property you buy. In addition, you cannot buy vacant land or international property with your loan.
Type of security and location of security also varies from lender to lender.
On top of the extra repayments required to pay back your loan over time, you’ll also need to account for any fixed or variable interest rates, as well as loan administration fees, that your lender attaches to the deal.
In addition, you should account for ongoing property management fees associated with leasing, advertising, and maintaining your property.
Yearly Accounting and ASIC registration costs also need to be taken into account.
Around 4-6 weeks from start to finish. This gives you time to prepare a Statement of Advice, set up your trust deed, register with the ATO, and invest your money into the fund.
The entire process usually takes 4-8 weeks. However, this can vary depending on several factors, such as the complexity of your SMSF structure, current liquidity, the financial market, and how long it takes to prepare documentation.
When you work with The Mortgage Agency, we’ll speed up the process by ensuring you’re matched with a lender likely to accept your application.
Unfortunately, you cannot live in a property owned by your SMSF due to the ATO’s “sole purpose test,” which means any property you buy with your SMSF must be for the sole purpose of providing income for your retirement fund. That said, there is an exception for commercial properties.
With an SMSF commercial property, you can lease the property to a member of your SMSF, provided the lease is on an ‘arm’s length basis’. That means you need to lease the property under regular market terms and conditions (i.e., not with favourable terms for friends and family).
