As a current or former Australian Defence Force member, you've likely built up substantial superannuation savings throughout your service. One option you might not have considered is using your Self-Managed Super Fund (SMSF) to purchase an investment property. This strategy can help you build wealth for retirement while taking advantage of the tax benefits that come with super.
What is an SMSF loan?
An SMSF loan allows your Self-Managed Super Fund to borrow money to purchase an investment property. The property is held in trust until the loan is fully repaid, at which point it becomes an asset of your SMSF. This type of borrowing is also known as a Limited Recourse Borrowing Arrangement (LRBA).
As Finance & Mortgage Brokers specialising in the Defence community, we understand the unique financial situation that comes with military service. Defence Loans can help you access SMSF loan options from banks and lenders across Australia, ensuring you find the right solution for your investment property portfolio goals.
Benefits of using super to buy an investment property
Using your SMSF to purchase investment property offers several advantages:
• Tax benefits: Rental payments received by your SMSF are taxed at just 15%, compared to your marginal tax rate for personal investments
• Capital gains advantages: If you hold the property until pension phase, capital gains may be tax-free
• Forced savings: Your super contributions continue to grow your investment capacity
• Portfolio diversification: Property can balance your super fund's investment mix
Key requirements and restrictions
While SMSF loans offer opportunities, restrictions apply. Your SMSF can only purchase investment property – you cannot buy your family home or a property you'll live in. The property must also be commercially viable and cannot be non-specialised commercial property without meeting specific criteria.
The loan to value ratio (LVR) for SMSF loans is typically lower than standard home loans, usually capped at 70-80%. This means your SMSF needs sufficient funds to cover the deposit, stamp duty, and associated purchase costs.
The application process
Applying for a SMSF loan involves more documentation than a standard mortgage. You'll need to provide:
• Certified copy of the SMSF Trust Deed
• Certified copy of the Custodian Trust Deed
• Financial statements for your SMSF
• SMSF bank statements
• Copy of contract of sale for the investment property
• Details of your fund's borrowing capacity
As your SMSF Finance & Mortgage Broker, Defence Loans can guide you through this process and help prepare your SMSF loan application with our streamlined application process.
Interest rates and loan features
SMSF loan interest rates are typically higher than standard investment property loans due to the additional complexity and risk for lenders. However, some lenders offer interest rate discounts for larger loan amounts or existing customers.
You can choose between:
• Variable interest rate: Rates that move with market conditions
• Fixed interest rate: Locked rates for a set period
Calculating SMSF loan repayments is crucial for ensuring your fund can service the debt. Your SMSF needs sufficient cash flow from contributions, existing investments, and rental income to meet repayment obligations.
Choosing the right property
When buying an investment property through your SMSF, consider:
• Location and growth potential in the property market
• Rental yield to help service loan repayments
• Property type and tenant demand
• Maintenance and management requirements
Your property choice should align with your super fund's investment strategy and risk tolerance.
Working with specialists
SMSF loans are complex financial products that require careful consideration. The rules governing Self-Managed Super Fund loans are strict, and mistakes can be costly. Working with experienced Finance & Mortgage Brokers who understand both SMSF regulations and the property market is essential.
At Defence Loans, we have extensive experience helping Defence Force members structure their finances for long-term wealth creation. We can help you understand your SMSF loan options and connect you with the right lenders for your situation.
Is an SMSF mortgage right for you?
An SMSF mortgage isn't suitable for everyone. Consider your:
• Current superannuation balance
• Risk tolerance
• Investment timeframe
• Other retirement planning strategies
You should also factor in the ongoing costs of running an SMSF, including administration, compliance, and property management expenses.
Using your super to buy an investment property can be a powerful wealth-building strategy for Defence Force members, particularly those with substantial super balances and a long investment horizon. However, it requires careful planning and professional guidance to ensure compliance and maximise benefits.
Call one of our team or book an appointment at a time that works for you to discuss whether an SMSF loan could help you achieve your investment property and retirement goals.
