What are self managed super fund loans?
SMSF loans are a exclusive lending facility that enables a borrower to use his/her pre existing SMSF to borrow and invest in commercial properties including shops, showrooms, warehouses and other approved residential properties. The only mandatory condition is to have a well pre-established and compliant SMSF.
How does it work?
The process requires you to have a pre-established and eligible SMSF in order to use the loan facility.
1) The applicant fulfilling the pre mentioned condition then identifies an appropriate property (to buy) and applies for SMSF loan.
2) Subsequently, after ensuring your credibility in investment, the identified property is purchased by the “custodian trust” with your SMSF (utilizing the feature of beneficial entitlement to the property).
3) The custodians can then pass on the property to you or some other business and earn a rental income as per its discretionary acumen.
4) The rent is always collected under a trust name.
5) The collected rent income is diverted towards paying costs associated with the property.
6) Once the loan is repaid, the property gets transferred under your ownership, from the custodian, automatically.
Who can borrow the SMSF loans:
SMSF loans are offered to a variety of clients, including: -
- Residential property investors
- Business owners who are in sight of investment or looking to purchase new properties
- Established SMSF holders who want to diversify their existing investment portfolio
- Investors looking for tax effective structure to invest in direct property.
SMSF loans features: -
- The SMSF cannot buy the property from the related source.
- In case of loan default the custodian has the ownership rights and you are ineligible to apply for further loans under the fund scheme, therefore the investment strategy by the SMSF should be foresighted.
- The security property held in custodian trust for the SMSF is entitled to its income.
- The legal owner of the property is the custodian trust, trustee of the company.
- After the repayment of the loan the ownership of the property is automatically transferred to the SMSF.
- The SMSF’s has the same relation with the property as of investors with normal investment properties.
- All rent income is transferred directly to the SMSF.
- Subjected to terms and conditions of the respective loan the SMSF can reduce the mortgage at any point of time as per its discretion.
- After the mortgage is paid fully the property is transferred to the SMSF.
SMSF loans benefits: -;
- The applicant is at a considerable advantage as his/her SMSF can acquire property worth more than the value of available funds in the kitty.
- Your SMSF assets are secure even in the case of loan default.
The process of self managed super fund loans is highly advantageous as the tax liabilities can be condensed. The interest expenses can be claimed as tax deductions by the SMSF.