Most Australians use a combination of available cash and a loan to invest in property. Less than 4% used their Superannuation to buy property because borrowing from one's Super wasn't an option. Governmental concerns as to whether the new laws would stay in affect was an issue as well.
As of the changing laws of September 2007, you can borrow in a Self Managed Super Fund (SMSF)!
Three advantages of a borrowing in a SMSF:
- Low, or even zero tax in the Super fund environment.
- Power of leverage.
- Magic of compounding.
Types of clients:
- Owner occupiers: small business owners, professionals, medical professionals.
- Investors: buy property to create long term capital growth.
- Restructures (equity release).
Eligible properties:
1. Commercial Property
- Offices
- Factories
- Warehouses
- Showrooms
- Shops
- Medical suites
2. Owner occupied or investment in Metropolitan areas
- Major central centres
- Population greater than 25,000
There are some exclusions:
1. Specialized Property
- Pubs
- Motels/hotels
- Childcare centres
- Caravan parks
2. Environmental Risks:
- Bulk chemical storage and firm
- Service stations
- Vacant Land
- Construction
Example of criteria from one funder:
- Min. amount: $150,000
- Max amount: $2 million
- Qualifying property
- Rent must cover 80% of debt service
- SMSF must have assets for at least $100,000 in super
Some Case Studies: