Interested in investing with your Super?
Having personally bought via my SMSF I wanted to talk through the Top 5 points on where I saw value utilising this structure.
SMSF Lending (Self-Managed Super Fund Lending) allows trustees of an SMSF to borrow money to invest in property, shares, or other assets.
This borrowing is done through a structure known as a Limited Recourse Borrowing Arrangement (LRBA), which ensures that the lender’s claim is limited to the particular asset purchased with the loan.
The main goal of SMSF lending is to help the SMSF grow its investment portfolio, increasing the retirement savings of its members.
Here’s how SMSF lending can help:
- Leverage for Larger Investments
SMSF lending allows trustees to borrow funds to purchase more expensive assets (such as property) than the fund could afford outright. This allows an SMSF to leverage its assets and potentially achieve higher returns.
- Property Investment for Retirement
Many SMSFs use borrowing to invest in residential or commercial property. These properties can generate rental income and capital growth, which can contribute to the SMSF’s overall returns. Commercial properties can even be leased back to a member’s own business, providing both a retirement investment and a business premise.
- Tax Benefits
Income from investments held by the SMSF, including rental income and capital gains, is taxed at a concessional rate (generally 15%, and 10% for capital gains if held for over a year). In the pension phase, these earnings may even be tax-free, providing significant tax advantages.
- Increased Asset Diversification
SMSF lending allows the fund to diversify its asset base by purchasing a broader range of investments. This can reduce risk, as the fund isn’t solely reliant on one asset class (e.g., shares) for its returns.
- Potential to Boost Retirement Savings
Through strategic investment in appreciating assets, SMSF trustees can increase the value of the fund over time, resulting in greater retirement benefits for its members.
Risks and Considerations:
- Higher Costs: SMSF loans often have higher interest rates and fees compared to traditional home loans.
- Legal and Compliance Complexity: SMSF borrowing is heavily regulated by the Australian Tax Office (ATO), and compliance with the rules is crucial.
- Risk of Negative Returns: Just like with any borrowing, if the investment does not perform well, the SMSF could face financial difficulties.
- Limited Recourse Loans: Since lenders can only claim the asset purchased with the loan if things go wrong, there are limits on borrowing, and the loan terms can be more stringent.
SMSF lending is a powerful tool for those who understand the risks and have a clear strategy, but it may not suit everyone.
Consider consulting a financial advisor to determine if it aligns with your SMSF goals.
Interested to know more and if this is an option for you?
Reach out for chat, 0428 471 491