John and Lucy heard from a friend that they can own property within an SMSF. After seeking financial advice they decide that a property investment suits their needs so they set up an SMSF and rolled over $350,000 from their retail funds.
The property they find is a residential property and is on the market for $600,000. They do not have enough in their fund to make this purchase but after seeking further advice are informed that they can borrow within their super under a limited recourse borrowing arrangement.
In order to do this however they must set up a Bare Trust as an SMSF is not allowed to purchase property directly where borrowings are used. This Bare Trust will be the purchaser of the property and the SMSF will be borrowing against that property. It is the SMSF that will make the repayments on the loan and receive the rental income.
Once the loan has been repaid in full the legal ownership of the property can be transferred to John and Lucy’s SMSF.
It is very important to get everything right when considering a limited recourse borrowing arrangement because the rules around SMSF’s borrowing money are very strict and can be complicated.
Undertaking this arrangement will require a Statement of Advice to be prepared by a qualified Financial Planner.
If you need help with borrowing in your super, contact us here.
This is general illustration only, and the results will differ depending on the investment returns achieved which cannot be guaranteed.