Self-managed superannuation funds (SMSF) have proven to be a favourable avenue to gain a foothold in the Australian real estate market. Apart from the variety of tax incentives, the fact that you wouldn’t have to pay for any running expenses out of your pocket — but rather through your fund — is such a convenient setup.
Of course, lenders have unique requirements to approve your loan if you choose the SMSF structure, but they’re not impossible to meet. The only reason many investors buying property in SMSF experience headaches is because they have the wrong impression towards the types of properties they can buy. Here are some of the common misconceptions of SMSF property investors:
You Can’t Live in the Property You Would Buy
Technically, your SMSF can invest in all types of real estate, but you must remember that it’s purpose is to grow your wealth for retirement. You’re free to buy any residential property through your SMSF, but it must be for investment. If you’re planning to move in, or let a family member or a friend reside in it, then you’re breaking the rules.
You Can’t Buy a Friend’s House
Any piece of real estate owned by anyone related to you by association or blood may be off limits. As SMSFs are generally not allowed to purchase properties from a member or a member’s associate. Lenders may have different interpretations of the term ‘associate’. This is why if the owner of asset you’re planning to get is remotely connected to you at work, there’s a good chance you may still be denied.
You Can’t Always Buy an Overseas Property
Although you’re allowed to buy a property outside the Australian borders, finding a willing local lender to finance your investment is the difficult part. Convincing an overseas lender is your option, but they may not have the skills to weave through the SMSF’s complexities.
Using your SMSF to penetrate the residential and commercial real estate market can be a breeze with the help of an experienced investment firm. Without professional assistance, you might miss or miscalculate possible risks along the way — which is costly in this endeavour.