Self-managed super fund property investing has seen significant growth in recent years. Especially since it became feasible to borrow money ​e. The superannuation industry could continue to witness the rapid expansion of this type of property investing as more than 33,000 new SMSFs are arranged every year.

If you are contemplating investing in property through a self managed super fund. Here are ten essential tips to facilitate the process.

1. Buying Residential Property

You cannot reside in a property purchased through a SMSF. Trustees or relatives of trustees are also not permitted to live in the property. You are also not permitted to rent the property therefore, if you purchase a property and decide you want to spend your summer vacation in it, this is not allowed. It is vital that you bare this in mind when considering smsf property investment.

In addition to this, putting an existing investment property into a SMSF is also not allowed.

Can I live in my smsf property when I retire? No, you cannot live in the property whilst it is still held within your Super.

2. Buy Commercial Property With Super

As a business owner, you can invest in property through an SMSF. You can do this by paying rent directly to the SMSF after purchasing a commercial property. The rent you pay cannot be paid at a discount rate, it must be paid on the exact due date and at market rate. The purpose of purchasing business property is to create retirement benefits for its members (the sole purpose test)

Check the numbers to ensure that over time, the growth in property value will provide retirement benefits for the trustees.

3. Tax

There are some tax implications associated with investing in property through a SMSF. The fund is obliged to pay 15% on rental income from the property. Properties held in a fund for more than a year will receive a 33 % discount on any capital gain it makes on a sale. Thus reducing capital gains liability.

If you borrow money to purchase the property, the interest payments are tax deductible to the fund. If costs surpass income there is a taxable loss, this can be offset on forthcoming taxable income.

When trustees begin to receive pension payments, capital gains in the fund will receive a tax exemption.

4. Borrowing

You can borrow money to buy a property through a SMSF through a limited recourse borrowing arrangement (LRBA). SMSF loans are actually becoming more and more popular.

To borrow money to purchase a property through a SMSF, a standalone property trust and trustee is secured. The income and costs associated with the property are managed through the super funds bank account. All loan repayments must be made promptly, if the super fund defaults on the loan, the lender will not have access to the leftover assets, it will only have the property held in the trust as recourse.

5. Borrowing Criteria

It is crucial that you understand the borrowing criteria before you enter into a loan agreement to purchase a property through a SMSF.

• $200,000 minimum in the fund is preferred
• Loan repayments must be made from your SMSF

6. You Are Responsible For Compliance

It is your responsibility to abide the rules and regulations of borrowing to purchase property through a SMSF. All trustees are responsible for compliance and must abide by all rules associated with borrowing. Therefore, before entering into any agreement, you should seek professional advice from a qualified specialist.

7. Use The Correct Name

Make sure the property is purchased in the correct name. The contract signatures and the certificate of title should bare the same name. If you purchase a property using the wrong name, it could result in costly stamp duty problems.

8. Renovating The Property

Basic repairs and maintenance to the property can be paid for from borrowed funds. However, if you want to totally renovate the property, this must be paid for by cash that already sits in the fund. Renovating a property using the funds from the limited recourse borrowing arrangement is not allowed. You would need to enter into a

separate limited recourse borrowing arrangement to do this.

9. Single Acquirable Asset

If a property has several titles, it is necessary for each title to have its own bare trust, trustee and LRBA. It is essential that you understand how this works. In certain instances, it is possible to have a single LRBA. However, in certain circumstances, you would need several LRBA’s

Single LRBA:

• Factory property with several titles
• House and land combined
• Off plan property that is complete, if cash deposit paid, LRBA can be used to fund the remaining balance
• Apartment property with a standalone parking space-one LRBA is fine
• Option to buy a house (has not been purchased yet) If the house is subsequently purchased, another arrangement must be set up

Multiple LRBA’s

• If the seller only wants to sell two titles together (but legally they can be sold separately)
• Farm land with several titles
• Plot of land – if later a property is to be built on the plot of land
• Furnished serviced apartment – the furniture and the property are viewed as two standalone assets.

Multiple LRBAs required in these scenarios:

• if the vendor will only sell the two titles together (but it is legally permissible to sell them separately)
• farmland with multiple titles – if no legal impediment to selling them separately
• a block of land purchased – at a later date it is decided a house is to be built on block
• a serviced apartment that is fully furnished – the apartment and furniture are seen as two separate assets.

10. Fees and Charges

Be aware of the fees and charges associated with purchasing a property through a SMSF. Therefore, make sure you are adequately informed of the costs involved. Bare this in mind, you can use your own money to purchase the property but you can only withdraw it when you reach preservation age.

Remember take all these factors into consideration prior to entering into an agreement to invest in property through a self -managed super fund.