Self-Managed Super Fund (SMSF) lending, known as a Limited Recourse Borrowing Arrangement (LRBA), allows you to use part of your superannuation along with an SMSF loan to purchase investment property. All rental income and capital gains go directly into your SMSF, solely for building wealth for retirement, and cannot be accessed now.
SMSF Lending Overview
SMSF loans come with stricter conditions compared to standard loans. The investment must demonstrate long-term benefits, ensuring your super is well-positioned for retirement.
Lender Limitations
Investment Properties: In metropolitan areas, most lenders offer 70% Loan-to-Value Ratio (LVR), though some may go up to 80%. In outer suburbs, LVR ranges from 50-70% depending on the lender.
Example: A $600,000 property with a 60% LVR requires a $240,000 deposit plus stamp duty, all from your SMSF.
Commercial Properties: Limited to 75% LVR or less.
Construction: Cannot be debt-funded, but you can use SMSF cash for renovations.
Risky Assets: Properties like AirBnBs, farmland, and serviced apartments are viewed as high risk and are rarely approved.
SMSF Borrowing Capacity Calculation
Your borrowing capacity is determined by:
SMSF annual income (employer and voluntary contributions)
80% of the expected rental income from the property
Lender's Income Calculation
Employees: Lenders use the lowest super contribution from the past two years, even after pay raises. Voluntary contributions can increase this figure, provided they are consistent over two years.
Self-Employed: The lender uses the lower super contribution over the past two years to determine your borrowing capacity.
Rental Income: Lenders will add 80% of the rental income based on the property’s valuation.
SMSF Compliance
Investing your SMSF in property can grow your retirement wealth but also increases risk through reduced diversification. The Australian Superannuation scheme is designed to protect your retirement income, so strict legal guidelines apply.
For more details on SMSF regulations, visit:
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