What is an SMSF

Like a regular super fund, a Self Managed Super Fund (SMSF) is an investment that you place money into during your working life that can help set them up during retirement. Australian Prudential Regulation Authority regulated funds (APRA) are typically managed by an organisation or enterprise. Comparatively, those managing their super independently have more control and responsibility, meaning they have to actively make contributions to their super, and can decide what it’s invested in.

What do I need to know when setting up an SMSF?

Entering the SMSF world is complex, and you likely need to have experience and success with investing before leaping into it. The biggest obstacles to managing your own super fund is wealth and knowledge.

An SMSF is best suited for those with a strong foundational understanding of financial and legal matters, a background in investing and a solid wealth foundation to fund it. The costs associated with setting up and running an SMSF are larger than what you would experience with an APRA fund, which is another hurdle that can exclude young investors. Speaking with a financial advisor can help break this down into more digestible figures, and help you decide if it’s the right choice for you.

You’ll also need to devote more time to managing your super, staying up-to-date on current regulations, researching investments, and performing accounting administration.

What can I invest in using an SMSF?

Those with an SMSF can invest their funds in a wide array of assets. Possible investments include standard investments such as shares and stocks, all the way to more extravagant investments such as gold bullion, artwork and cryptocurrency. However one of the most popular and proven forms of SMSF Investment is, of course, property.

There are several important rules and restrictions to be aware of when investing in property using an SMSF.  The property needs to be an investment property, meaning it cannot be owner-occupied. It also can’t be lived in by a family member, or someone closely related to you. If other people are members of the fund they also cannot reside in the property. Lastly, the revenue of the investment has to go towards your super, meaning any gains made from it are only accessible in retirement.

Borrowing using an SMSF

Borrowing from a lender using your SMSF is inherently risky, as you are, quite literally, investing using your future savings, meaning that the funds you have available in retirement are tied in up a mortgage^[1].

For this reason, there are strict regulations and conditions on borrowing. Borrowing is done under a limited recourse borrowing arrangement (LRBA). This means…

• You must have acceptable cash flow at all times to cover expenses related to property ownership. This includes loan cost, maintenance, property management, and insurance costs.
• There must be a strategy to repay the loan if you are unable to, due to adverse circumstances.
• The property cannot be altered or renovated past required maintenance.
• You cannot offset tax losses against your taxable income.
• It’s more difficult and restrictive to sell an SMSF property.
• SMSF loans usually carry higher interest rates.

It’s worth noting SMSF investments are typically pricier than regular investments.

Benefits of investing in property using an SMSF

While there are more restrictions, an SMSF investment property can be beneficial. Some reasons you may choose to invest in property using an SMSF are…

• Access to potential tax benefits, including property depreciation.
• Building wealth to support you through retirement.
• Access to more properties with a higher budget.

Buying property in your SMSF can be a great strategy for established investors to build wealth. There are several risks and factors, so it’s integral to have a financial advisor and mortgage broker through the process. Reach out to your local MoneyQuest mortgage broker, and set yourself up for retirement, today!

[1] moneysmart. SMSF’s and property. Viewed 7/11/2024

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