Using your self managed superannuation fund to purchase an investment property can be a great strategy.  At Property Zest, we have helped many clients to purchase a property in their SMSF.  For those you who have wondered what is involved in doing this, there are a few steps involved and a few things to be aware of.  Having purchased many properties for clients as well as two in my own super fund, I have a few tips and tricks to share with you.  Obviously this is a pretty specialised area and we encourage you to seek out a well qualified advisor who is appropriately licensed and experienced with SMSF setup to assist you!

A while back, I did actually record a podcast episode just after my first purchase sharing the highs and lows of my experience, you can listen to the SMSF Debrief podcast episode of Everyday Property Investing here.  Here are the basic steps:

Setting up your SMSF
  • Setting up your SMSF requires professional advice.  Your advisor must hold an Australian Financial Services licence allowing them to give financial product advice.  This includes your accountant.  Seek out someone who specialises in or has a lot of experience with self managed super funds.
  • As with any financial product or service there are risks and costs as well as potential benefits.  Your advisor must provide information to you about the risks and costs of an SMSF.  There are some great ASIC resources, aimed at financial advisors, that will let you know what they must discuss with you and what you need to know!
Rolling over SMSF funds

In order to roll over funds you’ll need a bank account, which involves all of the usual paperwork and identity checking, slightly complicated by the SMSF being an entity rather than just a person.

If you’re anything like me when I decided to setup an SMSF then you (and potentially your partner) may have a collection of random super accounts from way back when, collected over the years and jobs you have previously held!  Once you have a list of your known super accounts, plus any lost super you may have ( to check for lost super review the information and form here) then you will need to fill out a seperate Rollover Initiation Request for each super account.

This process can take a little time and can be the hold up for many, both at your end in completing and returning documents and the superfund end by them taking their time to finalise, but once this is done, you should now have your freshly baked SMSF complete with bank account and money!


Getting your purchase entity ready

If you’re buying the property with cash funds then you can skip this bit!  If not, then here’s the bit where it can be a little confusing.  In order to minimise risk to your SMSF, if your super fund is borrowing money for the purchase then it must be protected from that risk and it does this through a Limited Recourse Borrowing Arrangement.  This is where a separate trust is set up within the SMSF, called a ‘Bare Trust’ and it is the trustee of the bare trust that takes out the loan to purchase the property.  The property asset is held in this separate trust, meaning if the loan defaults then the lender’s rights are limited only to the asset held in the separate trust – hence, limited recourse to other assets in the SMSF.

On a practical level this means that you/your advisor will need to setup a Bare Trust and Trustee in which you will purchase the property.  The timing of this may be important depending on where you are buying the property so you should work out where you plan to invest and seek advice based on this.  Where we purchase, in Queensland, for example, the bare trust documentation often needs to reference the actual property address, which means you can’t execute the trust deed until you have a signed contract – BUT – you can’t sign a contract in an entity that doesn’t exist….so this is a bit of a chicken and egg scenario!  What often happens is that the investor will have a bare trust deed ready to go during the search phase of a property purchase and just prior to signing a Contract of Sale on a property they will insert the property details and execute the bare trust deed.  Now you can see why it’s good to have a good team around you during the purchase process who can advise and assist!

Getting finance pre-approval

Loaning for SMSF purchases has become more restrictive over the last few years and banks vary with what they will and won’t loan and the criteria around this in terms of interest rates, loan to value ratio and property yield requirements.  Working with a good broker, particularly one who is experienced with SMSF borrowing is essential.  As with any purchase you should work with your broker to obtain a finance pre-approval to give you a clear picture of what you will be able to purchase and where.  No point looking at hugely negatively geared properties for example where the bank requires a 5% yield to provide the funds, for example.  Best to be informed up front.


Rules of owning property in your SMSF

There are some rules to owning property in your SMSF and what you can and can’t do with it!  Best to know these up front.

Use of the property

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

Development: If a property is held by the superannuation fund and not involved in a limited recourse borrowing arrangement then essentially you can do what you wish!  This means renovation, development, subdivision…anything!  So long as the other rules around use of the property are adhered to and you can fund it, remembering that you cannot borrow against the asset to fund the works.  There are some more complex ways to enable you to develop a property that is held in your SMSF that does have borrowings on it, but they can be quite expensive and tricky and involve setting up setting entities within the SMSF.  For most people, developing property within their SMSF will not be a viable option but if learning more about this does interest you, please seek advice from a professional who has experience with this more complex end of SMSF investment.

Renovation:  Making improvements to a property in super is fine so long as those improvements are paid for by cash funds within the SMSF (are not borrowed) and do not change the fundamental character/purpose/use of the property.

Commercial Premises:  One thing you can do in your SMSF if purchase commercial property.  In fact, many business owners see this as a great strategy because you can use your own SMSF funds to purchase a place of business and then rent it to your own business.  This is a great way to invest your SMSF funds in a rental property where you have a (hopefully) long term and reliable tenant who will look after the property!


Making your purchase

So now we get to the fun part – buying a property!  This is also where we, at Property Zest, can help.  We have helped many clients to purchase property in their SMSF and I have personally bought two properties in my own SMSF.  If you would like to speak to us about helping you to do the same, please contact us, we’d love to help!

If you have the time, knowledge and desire yourself then, of course, you can DIY the purchase!  This article, Your 5 Step Plan to buying an Investment Property provides a good task list you can work to in the purchase process.

Ongoing property management and SMSF compliance

In terms of the ongoing Property Management requirements, I’d thoroughly recommend having your property managed by professionals, and that’s not just because Property Zest offer fantastic property management services!  Really, property management is a complex and difficult area and having people, systems and processes in place that can deal with ongoing maintenance requirements and the needs of tenants whilst ensuring compliance with legislation is imperative.

If you have a property in Brisbane and surrounding areas or the Sunshine Coast, Property Zest can help you with the management of your property.  We can help to protect and enhance your asset over time.  You can give us a call anytime or lodge your enquiry in the form below.

Just as having a rental property has ongoing costs and responsibilities, so too does having an SMSF.  There are strict regulations on the establishment and running of an SMSF, which include recording and reporting requirements, administration, tax reporting and auditing.  You can read more about this at the ATO website.

As a trustee of a SMSF you have obligations to appoint an SMSF auditor, keep reports, submit tax reports, ensure the ATO is kept informed of changes, lodge transfer balance events.  Once again, it will be imperative to have a good team of professionals to assist.

Ask Property Zest a Question

Type of Enquiry

How should we contact you?

Yes I would like to receive the latest Property Zest news and tips!