Building your wealth is not limited to savings. It requires you to carefully analyse your options so that you gain high returns on investments. This essentially is what it means to make your money work for you. A self-managed super fund (SMSF) is a type of superannuation fund in Australia where the members are also the trustees of the fund. This means they have control over how the fund is managed and the investment decisions are made. When you know where to invest with regards to self-managed super fund property, you can expect massive returns in comparatively much lesser time.
There are some rules to an SMSF, such as
- The purpose of this is to ensure that all the members gain a retirement benefit for the trustees
- The property acquisition must be unbiased, implying that the property should not be bought from friends or relatives of any fund member.
- No fund members are to live in the said property even if they are ready to pay rent.
- No fund member is to rent out the property even if they are ready to pay a certain amount to the fund members.
When you know the potential of a self-managed super fund, you might want to know how you buy a property and what the criteria are to measure the success of such an investment opportunity.
Tips to Buy An SMSF Property
Strategise Before Implementing
Before investing in your super, determine the investment goals and strategy for your self-managed superannuation fund. As some trustees do, it shouldn’t be done after the investment is formed or written to fit the desired investment because this is not the right procedure.
SMSF investments must always be made in accordance with a plan that specifies how much exposure to direct property the fund is allowed to have, what type of exposure it can have, and if the exposure is suitable given the circumstances of the fund members.
Furthermore, the fund’s investment strategy must be in place, and its investments must be compliant with those strategies. This will ensure the SMSF auditor be appeased each year.
As with most investment strategies, one crucial thing to remember is that you must diversify your funds to minimise the risk. Putting a large share of SMSF in only one asset is not ideal. A well-diversified portfolio helps in bringing much-needed security and guarantees a better return.
Careful With Your Property Screening
There are rules in place about how the property should be used and who cannot rent or live in it. Any property bought by means of a pool SMSF cannot be used for residential or rental purposes by the trustees in question. Furthermore, the process of acquiring the property must be transparent and take place after everyone’s affirmation.
There Are Plenty Of Ways
Most people lack sufficient super to buy a property entirely. While the reason can range from inadequate savings to fixed assets, there are a variety of ownership structures that can be used, such as tenants-in-common or related non-geared unit trusts. The usage of borrowings through Limited Recourse Borrowing Arrangements or LRBA is, nevertheless, the most typical. Be familiar with these complicated LRBA rules.
Streamline Your Resources
It is of paramount importance not to rush into anything when it comes to SMSF. If you do not know or have the financial backing to support your borrowing, things will get complicated with your LRBA contract.
So before it gets under the control of a bare trust for good, you must streamline your financial sources in order to make sure that you still gain ownership of the property.
Don’t Stretch Yourself Too Thin
There are various LRBA restrictions to the extent to which any property can be renovated. After all, it is not your home and not bought for the purpose of you living there anyway. But despite that, you cannot make structural changes with the expectations of hiking up the prices. Regarding that, the rules are very clear.
Also, you must remember that once you are tied up with one property through an SMSF, you cannot fund another property through SMSF even if the loan is paid back.
Be Prepared For The Worse
With any mode of investment, there are a series of risks and unpredictable circumstances. Your SMSF partner may go through some losses, someone from the trustees may die, and you can always be faced with unprecedented challenges. Therefore, you must take calculated risks no matter how lucrative the offer may seem right now. You cannot control the future.
APW Finance can assist you in your endeavours to get loans at competitive rates, SMSF loans and much more so you can retire early and live the life you envisioned. Contact us today for more information.
Experienced Director with a demonstrated history of working in the accounting industry. Skilled in Tax Preparation, Self Managed Superannuation Funds (SMSF), Accounting, Income Tax, and Tax. Strong professional with a Master of Applied Finance focused in Taxation from University of Western Sydney.