You might’ve heard a friend discussing the use of their super money to buy property at a recent BBQ, leaving you questioning its possibility and legality. SMSFs have gained popularity for property purchases, but here’s what you should know before deciding if it’s right for you:

Buying outright using SMSF funds

You find a property that fits your strategy and pay the full purchase price by transferring funds available in your SMSF.

Financing and paying the deposit from SMSF

In today’s property market, having enough funds outright is rare. You’ll need to explore financing options. Taking a mortgage to buy property in SMSF is possible through limited recourse borrowing.

What is limited recourse borrowing?

Under this, SMSF trustees set up a holding trust that holds the property, and the SMSF secures finance against it. The lenders, usually banks, have limited recourse only to the property; other SMSF assets are protected. This is called limited recourse borrowing. Once the loan is paid off, the property is transferred to the SMSF. The SMSF collects rents, pays for property maintenance, and handles other expenses, including loan repayments.

Is buying property with LRBA easy?

It’s not the same as buying outside SMSF. Below are the steps to buy property under LRBA. Always check with professionals like your financial adviser before making any decision if you are not sure this is a good investment for you or not.

• Check with banks to see if you’re eligible for an LRBA loan. Not all banks provide loans to SMSFs for property purchases, so shop around and try to get preapproval.
• Once you have bank preapproval and have chosen the property, you’ll need to set up a holding or bare trust and a trustee company, listing the property address in the trust deed. Your financial adviser or accountant, like ,can help with this setup.
• Provide all details to your finance provider and conveyancer for the settlement process. Always seek advice from professionals, like your financial adviser, before making any decisions if you’re unsure whether it’s suitable for you or not.