Using Self Managed Super Funds for Property Investment

By Michael Poynter

Overview

Changes to super laws in late 2007 allow borrowing within the superannuation environment. This is starting to gather some traction in the marketplace, with increasing numbers of commercial and investment properties being purchased.

Previously, in line with the inherent purpose of super to invest for retirement with minimum risk, investors were not allowed to borrow against assets owned by a super fund.

Now it is allowed via a slightly complicated structure – a new custodial (bare) trust specifically set up to own the property, where the sole beneficiary must be a self managed super fund.

To try and limit the risk to the core super concept of investing for retirement, a lender of funds can have a mortgage over the property, yet cannot have any recourse to other assets of the super fund.

When is Borrowing Acceptable?

When…

1. The borrowed money is applied to the acquisition of an asset;
2. The asset is of a type which the Fund Trustee is permitted to acquire.
For example, it could not be an asset that the Fund Trustee is prohibited
from acquiring from a related party under s66, or an in-house asset that
would result in the fund exceeding the allowable limit for in-house assets
under s71;
3. The Fund Trustee is not the legal owner of the asset. Instead the asset
must be held on trust so that the Fund Trustee acquires a beneficial interest
in it. We can refer to the legal owner of the asset as the “Custodian”;
4. The Fund Trustee has the right, but not the obligation, to acquire legal
ownership of the asset by making one or more payments after acquiring the
beneficial interest ; a n d
5. The lender’s rights against the Fund Trustee for default under the
loan are limited to rights in respect of the asset only (i.e. the borrowing is
limited recourse).

About Michael Poynter….

Using Self Managed Super Funds for Property Investment

My Next Property

I am gearing up to go again with another investment property.  What I find is that as get further into your property portfolio, more balls need to align to get the deal across the line.

So, the bank side looks fine and I should be able to get up to a $600,000 loan.

I am tied a little as to release some funds for the transaction costs,  I need to refinance the Mackay property.  This is tied into a St George Mortgage and I can only refinance if I use the funds into another investment property.  As you know nearly through the strata titling, which should enable me to release $50k or so which will go towards the transaction costs, so in a holding pattern until the strata titline goes through and then the refinace of Mackay and the set up of a new finance pre approval for a new property.

Then the next question is where to go.  I am keen on a NSW property to balance out my portolio; 3 bed townhouse would be ideal, but could be some restrictions on city proximity with my price range, so may have to go for a 2 bed unit.

I have put the feelers out and North West Sydney has come back as an option, Ryde area.

An interesting one came up in one of the top 100 hot spots in Melbourne at $50 under market value but it went before I could even think about it; not really ready to move that quick. Just shows that you want to get all the ducks in a row so you can grab the opportunites as they arise.

I was also approached on a land grab, west of Mackay.  Bit of a riskier option, but the big miners are doing the same and if it goes well, would be a good short term option.

So plenty of options flying around. Just need to get everything so I am ready to go!