Changes to superannuation laws in 2007 provided SMSF’s the opportunity to borrow for the purpose of acquiring a single asset (such as a commercial or residential property) through their SMSF.
If the SMSF has a deposit that meets the lenders requirements the lender will provide the balance of the purchase price.
Legislation requires that the loan must be a Limited Recourse borrowing Arrangement (LRBA). This allows the lender to hold the property as security, however, any other assets held by the SMSF cannot be used for additional security. Subsequently the lender may insist that the members provide personal guarantees.
What structure does my SMSF need to set up?
Property acquired via borrowed funds must be held by a bare trust with the SMSF being the beneficiary of the trust. The bare trust is simply the registered holder of the property until the loan is repaid. The SMSF receives all the rental income from the lessee and also pays the interest to the lender.
If and when the loan is repaid, the legal ownership of the property reverts to the SMSF.
The trustee of the SMSF cannot be the same as the trustee of the bare trust and some lenders will insist on a corporate trustee for each trust.
If you are interested in finding out more about SMSF lending, or any type of finance, please contact Mick on 0437 645 255 and he would be happy to help.