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SMSF Construction Finance

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Typically, banks and lenders do not lend to SMSF trustees to acquire or construct a new property, whether for personal purposes or investment.

But suppose you’re looking for ways to purchase a single asset using your SMSF loan without violating the Limited Recourse Borrowing Arrangements (LRBAs). In that case, this article is for you.

Why can I not apply for an SMSF construction loan?

Construction loans require multiple funding stages, which operate against the Superannuation Industry Supervision Act (SIS Act).

Construction loans first require funding to acquire the land/lot property. Then, the construction phase will have five to six loan funding stages, which essentially violates the SIS act.

The act states that SMSF trustees can only purchase a single acquirable asset for their super fund. That means the residential or commercial asset should only be under one property title.

Nevertheless, you still need to comply with your bank’s security and location requirements or lender if the acquisition is under your SMSF loan. But with a construction loan, you usually need a separate loan to purchase the property and another loan to finance the construction.

Both of those funding are prohibited for SMSF. For one, banks cannot let you use your SMSF loan to purchase a vacant property.

Second, building in the property also means improving the asset, which is the vacant lot. That is strictly prohibited under section 67B of the SIS act.

You can still acquire established property.

Instead of developing vacant property, our mortgage brokers at Plan A Mortgage can help you get approval to acquire a developed property with an SMSF loan.

We can also help negotiate your loan terms and features to loan up to 70-80% of the asset’s value, be it a commercial or residential property.

Depending on your case, we can even take further steps to negotiate better interest rates by binding the agreement with the lender’s residential loan department.

Speak with us at 1300 052 055 to know how we can help you with your SMSF loan!

Can I apply for an SMSF loan to renovate the property?

Under the LRBA, you cannot use your SMSF loan to make necessary upgrades or improvements to the commercial/residential property you want to acquire.

Hence, an SMSF loan isn’t for you if you’re looking for a fixer-upper property that you can renovate and sell for a higher value.

That’s because lenders and banks see old and worn-down properties as higher risks since you’ll most likely spend a huge sum for repairs and structural renovations.

As a result, your super fund might not have enough liquidity to cover the costs, making it an expensive investment that isn’t worth lending.

However, several LRBA amendments now let you use your super fund to cover minor repairs and maintenance necessary to keep the property in pristine condition.

To know more about how you can apply for an SMSF loan, feel free to speak with us at 1300 052 055.

I still want to use my SMSF loan to purchase a new property.

Suppose you want to skip the repairs and renovation that come with purchasing old properties. In that case, we suggest acquiring off-the-plan assets like an apartment.

While that means buying a new property, you’ll only need single funding on your SMSF loan. That follows the LRBA’s single acquirable asset policy, meaning you’ll be good to go.

Moreover, your super fund’s usable liquidity will cover the fees and deposit to complete your purchase. After that, you can apply for an SMSF loan following the normal procedure.

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Investing in your SMSF? We can help.

The policies surrounding SMSFs and the LRBA frequently change. That’s why it helps to keep yourself updated by speaking with your accountant or the Australian Taxation Office (ATO). 

Our mortgage brokers at Plan A Mortgage can help if you want to invest in your SMSF. We have a team that specialises in SMSF loans and can help you negotiate excellent deals and interest rates.

Call us at 1300 052 055 and discover the best deals and qualify for an SMSF loan today!

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