An SMSF loan is a loan used to buy residential and commercial property from a self-managed super fund (SMSF). The returns on the investment – whether that’s rental income or capital gains – are channelled back into the super fund to increase your retirement savings.
With the right SMSF loan, self-managed super fund structure and property type, you can potentially save hundreds of dollars on an account structure and keeping fees. With a SMSF loan you also have the flexibility and freedom to:
Joan wanted a wealth building plan to help her set aside funds for a large nest egg for retirement. She had a SMSF with $200,000 and used the money to borrow extra funds to secure a residential investment property. Using a variable rate loan with a 7.80%p.a. interest rate, Joan borrowed $300,000 with an LVR of 80 per cent. The deposit is partly covered by some of Joan’s SMSF funds, while the balance is borrowed money.
This allowed her to buy a property for $475,000, bringing the total cost, including stamp duty and other fees, to $500,000. Joan then rented the property out at $500 per week, giving her an annual rental stream of $26,000. Using money earned from the rent and other income, Joan was able to meet her home loan repayments and used SMSF money to cover repairs to the property.
Keeping an eye on market rates, Joan can increase the rent of her property while it grows in value over time. As a result, Joan can earn a steady stream of rental income and re-sell the property in the future potentially for a higher amount.
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