3 ways to invest in property using your SMSF

Australians have a long-held love affair with property. When Aussies start to take control of their super by having a self managed super fund (SMSF), they often want to buy property.

Using an SMSF to invest in property is possible, however there are some strict rules to comply with. Let’s take a look at the ways in which you can invest in property using your SMSF.

One straightforward way to invest is to directly buy the property where your SMSF has sufficient cash to do so. Many SMSFs are locked out of this strategy because property prices are too high and the total money in the SMSF is not enough to buy the desired property. 

Your SMSF can borrow the money to buy a single piece of real estate, but it needs to be done using a particular structure known as a limited recourse borrowing arrangement (also called a bare trust). The lender can either be a professional lender or a related party, but in either case, strict rules must be followed to do this.

For SMSFs with smaller balances, the third way is fractional property investing. This is where an intermediary party creates a structure that owns a property, where SMSFs can invest in a fraction of the underlying property.

In this situation, the other investors could be anyone – including other SMSFs. This makes it more affordable for SMSFs to jump on the property ladder. It also allows an SMSF to buy smaller shares of several properties, if that’s desired.

Regardless of which structure is used, the SMSF’s members and related parties are not allowed to live in the property as residential property. However, if the property is wholly used in a related party business, this is allowable as long as market rate rent is paid to the SMSF.

For example, an architect who runs their own business can own the business premises (eg, an office) using their SMSF, and the business can rent from the SMSF. This means the SMSF is the landlord and the business is the tenant. The business generally claims the rent as a tax deduction.

Before you dive in, it pays to do your own research about whether or not property will be an appropriate investment for your fund. If you’re ready to start an SMSF journey – and want to have more visibility of your investments using an innovative online platform – get started with Selfmade today.