Small business investors have frequently turned to self-managed superannuation funds, or SMSF loans, over the last ten years. A large aspect of this rise in demand has been the introduction of the “Limited Recourse Borrowing Arrangements” which has allowed business owners to buy real estate.
Suddenly, something that was previously only available to the extremely wealthy had become available to all types of business owners alike. But even with the rise of the SMSF loan, it still seems to be shrouded in mystery.
The Very Basics to Know About an SMSF Loan
SMSF loans are most typically used for retirement benefit and tax benefit purposes. This loan is a trust of sorts that includes anywhere up to four members, who are usually corporate or even individual trustees. These loans cater to two different types of property.
- SMSF commercial loans for commercial property for small businesses.
- SMSF residential loans for residential property, such as apartments or houses.
Of the two loans, SMSF commercial loans tend to be more popular, particularly amongst business owners. SMSF loans are managed by the Australian Taxation Office. Be sure that part of your team includes a professional with loans, preferably one that has extensive experience in either of the two SMSF loans. These experts are best able to help you with following the necessary steps and legal procedures.
The Costs Involved in Setting up an SMSF Loan
To make the fund viable, the Australian Securities and Investments Commission requires a minimum balance of $200,000. However, SMSF loans don’t actually require a minimum balance to just get started. For just under $1,000, you would have enough establishment costs to be able to get your SMSF loan set up.
The Difference in Standard Investment Loans and SMSF Loans
With the two different SMSF loans, there is a difference in borrowing to invest property. Residential property SMSF loans allow you to borrow up to 80% of the value for your property, whereas commercial property SMSF loans allow you to borrow up to only 70% of the value for your property. These both differ greatly from a standard investment loan.
SMSF loans are a wonderful way for business owners to become the landlord of their own property. You are able to take ownership in ways that weren’t possible before. It’s a great way to boost your funds and watch your business thrive. This long-term investment can put you on the right path to retirement.