For many people with a self-managed super fund (SMSF), property investment is their go-to option.

There are rules and conditions associated with this, and the key rule is when using your SMSF to buy a property it can only be used for property investment.

The funds in SMSF might allow for a property to be bought outright with no need for a loan.

However, your SMSF might also allow for a loan to be taken out into order to buy the property.

A loan taken out by a SMSF is known as a ‘limited recourse’. Simply put, if your SMSF fund fails to pay the loan, it cannot sell other assets in the SMSF to pay it back, which means it is a riskier option for lenders.

SMSF loans typically have a higher interest rate and more fees compared to other investment loans. Lending policies differ between lenders but for a residential loan a minimum of $50,000 to $100,000 can be taken out, with a Loan to Value Ratio of 80 per cent.

The Australian Taxation Office stipulates that the property must adhere to the ‘Sole purpose test.’

This means that your fund has be maintained for the single purpose of providing retirement benefits to your members, or its dependents should the member pass away before they reach retirement.

The rules surrounding using a SMSF to buy a residential property are quite strict.

You must take into consideration that the property you buy is not from a fund member, or any related party. It can also not be lived or rented by a fund member either.

If you use your SMSF to buy a commercial property, you can lease it to a fund member if it is used for business purposes.

The lease agreement must detail terms and conditions in line with common commercial agreements. Ensuring the market rate rent is paid regularly into the SMSF’s bank account is a stipulation too.

If using your SMSF to buy property sounds like something you would be keen to explore, it is important to speak to an expert for advice.

If you have any questions about using your SMSF for property investment, contact your Raine & Horne representative for advice.