A Self-Managed Super Fund SMSF Residential Investment Loan is a type of loan designed for authorised Australian SMSFs. The loan is used for the purpose of purchasing or refinancing residential investment property.

This type of loan allows SMSF trustees to borrow money from a lender to invest in residential property. This can potentially increase the overall value of the SMSF’s investment portfolio. However, it is important to note that there are certain requirements and restrictions that apply to SMSF Residential Loans. These include limitations on the types of properties that can be purchased, the amount that can be borrowed, and the loan-to-value ratio (LVR) that applies.

Additionally, SMSF trustees must ensure that any investments made with the borrowed funds comply with the Superannuation Industry Act.

The borrowing structure involves a loan to a SMSF Trustee with a Security Custodian purchasing the residential investment property. This is on behalf of the Super Fund. This Security Custodian, which must be a limited liability company, then holds the property as an asset in trust for the Super Fund, which has the beneficial right to acquire the underlying asset at a future date. The loan is limited in recourse. Importantly this means the lenders rights of recovery against the SMSF Trustee if the loan goes into default is limited to the secured property and any additional security the Guarantors may have provided

Suitable for Purchase, refinance of Investment residential properties in cat 1 to 2 locations.
Refinance must be dollar-for-dollar plus associated costs. No cash out.
Credit History – Paid telco defaults up to $500 (paid at least 6 months before application)
Up to 80% LVR.
Minimum $150,000 & Maximum Loan Amount of $1,500,000.

It is important for SMSF trustees to seek professional advice before considering an SMSF Residential Loan. This is to ensure they fully understand the risks and obligations involved.

Loan Requirements for a SMSF Residential Investment Loan

PAYG Applicants Only
SMSF is registered and complying fund as determined by ATO and issued a notice of compliance
Minimum $100,000 in net tangible assets required in SMSF prior to loan transaction and SMSF must have a minimum of 5% in liquid assets of the total debts held by the SMSF after this loan transaction
Security properties must not exceed land size of 2.5 hectares and are restricted to category 1 locations.
A minimum of 50sqm in living area excluding parking / balconies/courtyards (must have a separate bedroom)
Established high rise dwellings acceptable, subject to standard lending guidelines
Max LVR 70% for high density

Other Information on SMSF Residential Investment Loans

Single asset only
Off-The-Plan acceptable (conditions apply)
Cat 1 & 2 locations only
Rental Income – 90%
Voluntary contributions can be included in
servicing
For newly established SMSF’s, a letter from
the accountant or financial planner must be
obtained providing an estimate of running
costs. The higher of actual running costs,
accountants estimate

SMSF documentation

• Prior to settlement, borrower/s and guarantor/s will be required to obtain independent legal & financial advice. Evidence to be provided from solicitors/financial advisors that independent legal & financial advice has been provided

• Last two (2) years bank account statements, or current industry or retail fund statements to be rolled over, evidencing member contributions and cash / investments.

• Two (2) years tax returns and full financial accounts for the SMSF if available (incl. Certificates of registration for the Trust and Bare trust deed)

Full financial position of all guarantor’s must be verified, including obtaining a full statement of assets & liabilities, and evidence of income of the SMSF as follows:

› Copy of current or proposed lease for property.

› Proof of SMSF’s investments that are interest/dividend earning. Ownership by the SMSF must be verified via referencing actual share certificates, holding statements or financial statements confirming funds to complete.

› Proof of expenses for SMSF – if new, letter estimating costs from an accountant or financial planner.

› Certified copies of the SMSF & Property trust deeds

› Statutory declaration from all SMSF beneficiaries that the SMSF is a compliant SMSF under the SIS Act requirements, prior to loan settlement.