Diversifying your investments is a great opportunity for a risk-taker and entrepreneurial mindset like you. Are you convinced that the retirement fund may not still be enough? There is still a long way to survive upon reaching the retirement age. You may still need to look for income-generating resources to meet your daily expenses.

Perhaps, you’re thinking to use a portion of the SMSF to buy an investment property. Isn’t it? You’ll probably become pumped on property, but you still need to decide on it wisely. To know if you’re on the right track, talk to your fund manager. For the tax consequences, consult a chartered accountant. You should have proper guidance first before making a final decision.
Moreover, we prepared an SMSF checklist for you in acquiring investment properties. Here are some of the highlights of this topic:
1. Understanding the SMSF Rules in Acquiring Properties
Before you proceed with buying this asset, you should familiarize yourself with the basic SMSF rules. To comply with the ATO rulings, you must oblige with the following:
As for compliance purposes, the property should meet the sole purpose test from the Australian Taxation Office rulings. In this criterion, your self-managed super fund should have the sole purpose of providing the retirement benefits related to the fund members and other beneficiaries.
You should not use other fund member’s SMSF to acquire the property.
Since the property is intended for investment purposes, it should not be lived in or rented by the fund members and other beneficiaries.
2. What are the attributable costs related to the acquisition?
The self-managed super fund will shoulder the acquisition costs as long as it is enough to cover all the related expenses. Otherwise, you might need to pay the remaining balance using cash or apply for a mortgage to settle for the outstanding loan amount. To have some ideas with the costs, here is the quick summary:
Down payment or upfront fees
Stamp duty
Bank fees
Advice and legal fees
Management fees
Accounting and processing fees
Land tax
3. Learning the Concepts of SMSF Borrowing
If your SMSF is insufficient to cover all the costs, you may consider applying for a mortgage loan. However, you should meet the limited recourse borrowing agreement before you can apply.
What is a limited recourse borrowing agreement? From the word itself ‘limited’, this refers to the negotiation wherein the mortgage loan is capable to purchase a single property only. Regardless of the loan applicant chooses a residential or commercial property.
In terms of the drawbacks, you must discuss this matter first with the fund manager. Your self-managed super fund is linked to risk profile and investment strategies of the fund company. It would be complex to deal with the retirement fund while paying off the monthly debts for your acquired asset. Check it properly whether you can pay the mortgage loan and corresponding interest charges.
What are the risks associated if you purchase the property from the SMSF? Generally, you cannot make any alterations to the building until you settle the loan in full. SMSF loan lenders may impose higher costs on the properties apart from the costs mentioned above. Moreover, if you fail to pay off the loan repayments, you cannot be able to cancel the mortgage loan and you will need to sell your property as well.
4. Purchase Decisions with the Property Developers
The property developer should be a licensed Australian Financial Services professional. It is their primary duty to provide financial planning advice to the people. They advise people concerning setting up a super fund and acquiring properties through SMSF.
You can discuss your financial standing to the property developers so that they can provide you some advice regarding the acquisition. They can also give you some recommendations in case they find properties with discounts and other privileges.
If there’s an instance to apply for a mortgage, they can also provide you the consequences and refer you to the lender with a lower interest rate as well.
5. Benefits of Acquiring a Property using SMSF
Having a sufficient self-managed super fund is a life-saver opportunity. The fund members may own investment properties through their SMSF in case they don’t have immediate cash to use. Moreover, SMSF has some great tax incentives.
For instance, if you purchased an investment property, the rental income will be taxed at 15% while the capital gains at 10% instead of the usual tax range at 27.50% to 30%.
Let’s say, you reached the retirement age and you’re now officially receiving a pension from your SMSF. Thus, your rental income or capital gains will now be tax-free.
Aside from the tax benefits, having an investment property can endure the test of time. It means you own this asset for a lifetime. You can do whatever you want either lease it out or sell it. At the end of the day, you would still generate some income from your investment property.
Lastly, the diversification of your SMSF investment portfolio is also a great decision-making plan. As the wise investor says, you should put your money into different investment schemes. In this way, it will not be too risky to put all the funds in one plate. If you decided to acquire an asset for capital appreciation purposes, then this is a great opportunity to increase your finances.