SMSF Property Purchase/Borrowing, What is all the hype about?04-Mar-2014
A lot has been said over the past few years about SMSF and the ability to purchase properties and partly borrow. There has also been some negative comments about SMSF borrowing to achieve their investment strategies. However, the many good stories significantly outweigh the bad, but do not receive the same amount of publicity.
In general, many SMSF trustees could be described as relatively shrewd investors who carefully research and invest in assets, including property (with or without borrowing), after fully considering the advantages and disadvantages of such an investment.
A business owner’s ability to have the premises owned by their SMSF provides both the members and their SMSF with a range of benefits, including:
- For the trustee of the SMSF: applying their superannuation money to an appropriate investment; and leasing the premises to a business they ‘know’.
- For the member/business owner: Freeing up business capital; Paying rent to a related entity; and having a degree of certainty that the landlord will continue to lease the premises to them.
That is a win/win situation, both for the trustee of the SMSF and the members of the fund. In fact, the ability of SMSFs to acquire property from and/or lease property to a related party was a major reason for including the Business Real Property exemption in the Superannuation Industry (Supervision) Act 1993 (SIS Act).
From a different perspective, the ability of a SMSF trustee to borrow and invest in real estate can assist a prudent investor in carrying out their responsibilities as trustee. Like many other investors, SMSF trustees will have varying levels of confidence in other forms of investments, particularly equities and similar marketable securities. Some SMSF trustees have a significant preference for investing in real estate in comparison to other investment classes. For those investors who wish to invest in real estate but:
- Do not have sufficient funds to purchase an asset outright; or- Have sufficient funds to acquire a property at a certain price level, but wish to purchase in a higher price bracket; or- Have a reasonable level of assets, but wish to maintain diversity through their investments by only applying a portion to the purchase of real estate, borrowing to acquire the selected asset can help them meet their investment objectives and assist them in growing their capital base for their retirement.
For a better understanding on how SMSF borrowing may be able to assist in your financial and investment goals, please do not hesitate to contact Simeoni’ friendly professionals on 93700400.
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