Self-managed superannuation fund (SMSF) trustees cannot borrow to buy land and construct a property, even if it is for investment purposes.
Are there alternative solutions so you can still play within the rules of the banks’ Limited Recourse Borrowing Arrangements (LRBAs)?
Why can’t I get a construction loan?
It has everything to do with the nature of construction loans.
Essentially, there are two loans: the cost of the land and the cost of the construction, with the latter typically split into five or six funding stages.
Under the SIS Act, SMSF trustees are only permitted to purchase a “single acquirable asset” for their SMSF.
Under the condition that the property is under one title, the purchase of a residential or commercial property for SMSF is considered a single acquirable asset so this would be acceptable. Granted, it would still have to meet location and security requirements of the bank if you were applying for an SMSF loan.
With a construction loan, however, you first need finance to buy the vacant land and then finance to build the home.
Firstly, you cannot buy a piece of vacant land for SMSF.
Secondly, the construction loan is essentially “improving” the asset (the vacant land) with the building of a property. This is not permitted under 67B of the SIS Act.
You can buy an established property instead!
By choosing the right lender, we can help you to borrow up to 80% of the property value.
For a commercial property such as an office building, retail shop front, warehouse or factory, you may be able to borrow up to 70% of the property value.
No matter the type of property you want to buy, we can often negotiate sharp interest rates by packaging the deal with the bank’s residential lending department, rather than the commercial and business arm.
Discover how we can help you with an SMSF loan!
Call 1300 889 743 or complete our free assessment form to speak with one of our experienced mortgage brokers.
This should not be taken as financial advice. You should speak to your financial adviser and accountant to ensure that you’re acting in your best financial interests and within the rules set out under SMSF legislation. These regulations change regularly so don’t get caught out!
Can I get loan to make repairs to the property?
You can’t use an LRBA to make improvements to the property you want to buy.
Keep this mind if your intention is to buy a “fixer-upper” and sell it for a higher price down the track.
Banks tend to see a lot of risk in buying an older property because it may result in your SMSF having to pay for huge repairs and renovations just to keep the property structurally sound.
Your superannuation fund may not have enough cash or liquidity to pay for these costs leaving you with a costly investment.
Despite this, recent amendments to LRBAs now allow SMSFs to borrow to pay for certain minor maintenance and repairs to the asset to ensure the property stays in good condition.
You should speak to your financial adviser about this to ensure that this rule is still applicable.
I still really want to buy a new property
If you want to stave off some of ongoing repairs and maintenance that comes with buying an established property, you can still buy an off the plan property such as an apartment.
Although you’re still buying a new home, there is only one drawdown on the SMSF loan meaning it meets the single acquirable asset test and will be accepted under an LRBA.
The deposit and the cost of completing the purchase, such as solicitors fees and stamp duty, will typically be covered by useable liquidity in your SMSF.
Once the off the plan property is completed, you can then apply for an SMSF loan as normal.
Do you want to invest for your SMSF?
The rules around SMSF and LRBAs are constantly changing so check with your accountant, financial planner or even the Australian Taxation Office (ATO).
We’re experts in SMSF loans so we’re always on the front foot with changes to lending policy.
Although SMSF construction finance isn’t currently available, that may well change in the future.
If you want to investment in property now, call us on 1300 889 743 or fill in our online enquiry form and discover if you qualify for an SMSF loan.