Can I use SMSF to buy a commercial property?

Share your concerns & ideas about commercial property loans in Australia.
Post Reply
User avatar
billyG
Posts: 42
Joined: Thu Jun 20, 2013 6:39 pm

Can I use SMSF to buy a commercial property?

Post by billyG »

Hello there,

I am a librarian and earn $57,000 annually. I want to buy a commercial property and rent it out. I don’t want to put much deposit from my savings. One of my friends recently took out a loan to buy an apartment using her superannuation. I was wondering if I would be able to do the same.

So could anyone tell me if I can borrow to buy a commercial property using my superannuation?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Can I use SMSF to buy a commercial property?

Post by Otto Dargan »

Hi billyG,

It is more difficult to borrow for a commercial property than for a residential property. However, some lenders may be willing to lend to an SMSF to buy a commercial property. There are several things you need to know about a SMSF commercial loan:
  • You may be able to borrow up to 80% for a commercial property.
  • It is possible to borrow up to $10 million and a higher amount will be assessed on a case by case basis.
  • The loan term can be up to 15 years.
  • You may be eligible for interest only repayments for up to five years.
  • Some lenders may provide discounted interest rates.
There may be restrictions on the type of property that you are allowed to buy. It may be easier to finance standard properties such as:
  • Residential properties
  • Offices
  • Factories
  • Warehouses
  • Retail shops
  • Restaurants
  • Rural properties
  • Farms (conditions apply)
It will be relatively more difficult to borrow for specialised properties such as:
  • Development sites
  • Vacant land in some cases
  • Properties in a poor condition
  • Those with a single use such as pubs, petrol stations and day care centres.
SMSF loan is complex by nature and lenders have a higher risk since it is a non-recourse loan. Lenders may ask for the following documents to support your loan application:
  • SMSF trust deed.
  • Custodian trust deed.
  • Tax returns for the SMSF (some lenders may not require it).
  • Proof of rental income.
  • A copy of the contract of sale.
There may be several benefits to you if you are able to sell your commercial property to your SMSF. You are, however, not allowed to sell your residential property to the SMSF. Selling your commercial premises can be a complex thing that involves Capital Gains Tax (CGT) and SMSF legislation. It is better to seek independent financial advice before deciding on this.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

User avatar
billyG
Posts: 42
Joined: Thu Jun 20, 2013 6:39 pm

Re: Can I use SMSF to buy a commercial property?

Post by billyG »

Thanks for the response. I don’t understand what you mean by non-recourse loan. Could you explain a bit about that?

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Can I use SMSF to buy a commercial property?

Post by Otto Dargan »

Hi billyG,

An SMSF commercial loan is a non-recourse loan. This means that the lender cannot make claims on any other assets of the fund in case of a default. They can only claim the property that is being used as a security. Another concern for lenders is that it takes longer to sell a commercial property.

Consequently, lenders consider an SMSF commercial loan to have a higher risk. Therefore they charge a higher interest and require a larger deposit in addition to restricting the types of properties used as security. They may require personal guarantees from the trustees. If the lender is unable to recover the loan then they may seek to recover money from the personal assets of the SMSF trustees.

It is better to contact a mortgage broker who specialises in SMSF loans. They may be able to negotiate lower interest rates and non-requirement of a personal guarantee with the lenders on your behalf.

If you need more information regarding your home loan application then you can call us on 1300 889 743 or fill out our free assessment form.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

User avatar
billyG
Posts: 42
Joined: Thu Jun 20, 2013 6:39 pm

Re: Can I use SMSF to buy a commercial property?

Post by billyG »

Thank you for the information. I am filling up the form straightaway.

doremi
Posts: 37
Joined: Thu Jun 20, 2013 7:11 pm

Re: Can I use SMSF to buy a commercial property?

Post by doremi »

Hi everyone,

I am also planning on buying a house using my self-managed superannuation fund. However, the property that I want to buy is a residential property. Could anyone tell me how much I can borrow? I have also heard that there are certain restrictions on SMSF home loans. I would be grateful if someone could tell me about that.

User avatar
Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Can I use SMSF to buy a commercial property?

Post by Otto Dargan »

Hi doremi,

Welcome to the home loan forum.

You may be able to borrow up to 80% of the property value when investing through a SMSF. However, most lenders will restrict the LVR to 75% or even 72%.

Some of the restrictions on SMSF loans are as follows:
  • You may not be able to get construction loans.
  • You may not be able to refinance existing SMSF loans with most of the lenders.
  • You are not allowed to live in the property that you acquire through your SMSF. You are, however, allowed to set up your business in the premise.
  • You are not allowed to sell a residential property that you or a related party owns to the SMSF. However, you may be able to sell a commercial property to the SMSF.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

doremi
Posts: 37
Joined: Thu Jun 20, 2013 7:11 pm

Re: Can I use SMSF to buy a commercial property?

Post by doremi »

Thank you for the response, Otto. I will get back to you if I have more questions.

Post Reply