Investing your super and acquiring further funding has some limitations compared with standard lending. 

All SMSF lending needs to show long term benefits, ensuring  your super is well invested for retirement. 

Lender limitations when acquiring an SMSF loan 

• Investment Properties within the metropolitan areas, you can achieve 70-80% LVR lending however most lenders offer 70% LVR only. Outer suburbs are determined case by case which can vary from 50-70% LVR.

Example: If you are interested in a  property in Ballarat, you may be required to have a 60% LVR, which will require a 40% deposit plus stamp duty. If you buy for $600,000 your 40% deposit is $240,000 plus stamp duty. The funds for your deposit and stamp duty must come from within your SMSF.

• Commercial properties must be 75% LVR or less.
• Construction can not be debt funded, you can however still renovate to repair improve your property with cash from your super fund. 
• Risky assets like AirBnB, Farm Land, Resort accommodation, Student accommodation, Serviced Apartments or any other niche property is not advisable by the government and the Lenders also view this lending as high risk, approving only on case by case. 

How will the Lender view my income and calculate my borrowing capacity?

The lender will calculate your SMSF income based on your contributions annually.

Employees

1. If you are PAYG (an employee) your annual Self Managed Super Fund income is calculated on the amount of Superannuation Guarantee paid annually for 2 consecutive years by your employer to your SMSF. 

If you have had a pay rise in the last Financial year, the lender will consider the lowest amount contributed for the past 2 years. 

for example in financial year ending 2019 you were paid $23,000 in super however in financial year ending 2020, your were paid $26,500 in super, the lender will take $23,000 as the SMSF income and use this  to determine your borrowing capacity.

2. You can also make Salary Sacrifice or voluntary contributions to increase this income, which needs to be made for a minimum of 2 years with the view to continue this year on year. 

3. This can then be increased based on the number of members contributing to the SMSF. If you are a couple, both super contributions will be included in the calculation. 

Self Employed 

1. If you are Self Employed your annual Self Managed Super Fund income is calculated on the lower amount contributed annually for 2 consecutive years to your SMSF. 

For example in financial year ending 2019 you contributed $23,000 however in financial year ending 2020, you contributed $24,500 in super, the lender will take $23,000 as the SMSF income and use this to determine your borrowing capacity. 

2. This can be increased based on the number of members contributing to the SMSF. If you are a couple, both super contributions will be included in the calculation. 

Rental Income 

The Lender will then add 80% of the assumed rental income, calculated from the valuation of the property, if you are purchasing. 

Self Managed Super Fund Compliance

Whilst investing your super in Property could be a strategy to potentially to grow your wealth for retirement, you are also exposing your SMSF to further risk from a lack of diversification and other potential risks of investing in property. 

The Australian Superannuation scheme is designed to protect you from loss of income during retirement and for this reason your super is heavily guarded by law.

Here are some links to the ATO website, where you can find more detail on the repercussions of not following the SMSF guidelines:

• ATO Website -> How We Deal With Non-Compliance 
• ATO Website -> SMSF Investment Strategy 
• ATO Website -> SMSF Sole Purpose Test