For many years, for many people, buying commercial property through a self-managed super fund (SMSF) has been a great way to grow wealth.
One key advantage in purchasing a commercial property over a residential property through the SMSF structure is the ability it gives a member of the SMSF to lease the property back to operate their business from.
While legislation prevents Self-Managed Super Funds from purchasing residential property and leasing it to a member of the fund, or to a relative of a member (among an array of other conditions), this does not (presently) apply to commercial properties, allowing business operators to purchase a property under their SMSF and lease it back to their own business.
Many investors prefer paying rent to their own super fund rather than someone else’s. Given commercial properties generally provide a greater return on your investment dollar, it is no surprise that so many investors have taken advantage of this strategy to help their investments grow faster.
While this has been a very popular structure and investment vehicle over the past several years, recent changes to the industry, especially in the finance sector, is resulting in a change to this landscape. With lending criteria and compliance having tightened dramatically in recent times, major banks have now ceased lending money to SMSF buyers, making it increasingly difficult to borrow funds through this structure.
With finance difficult (if possible) to obtain, SMSF purchasers may only be able to purchase property with available cash balances within the fund. In many instances, this will dramatically reduce what value property an SMSF purchaser can buy.
Naturally, for many buyers, the SMSF structure will remain an attractive way to invest in commercial property, depending on their circumstances.
In summary, this strategy can be win/win for you and your super account. Depending on your circumstances, buying a commercial property through your SMSF can be a great way to grow your wealth, especially if you have a business.
If you are considering setting up a Self-Managed Super Fund to purchase commercial property, you should do plenty of independent research and consult with your accountant and other financial experts to see if this structure will be beneficial in your circumstances, and if it will give you the capacity to purchase the desired commercial property.
Once you’ve chatted with your accountant or financial advisor, talk to us about what type of property you’re in the market for.