The Benefits of Owning Commercial Property Through an SMSF

For many Australians, superannuation is one of their largest financial assets. A self-managed super fund may provide the opportunity to use those savings to purchase a commercial property and take greater control over how retirement funds are invested.

## Use Your Super to Purchase a Long-Term Asset

Rather than leaving all the fund’s money invested in shares or managed funds, an SMSF may be able to use part of its available balance towards purchasing a commercial property.

This allows the fund to own a physical asset that can potentially provide rental income and long-term capital growth. Any income and growth remain within the SMSF and are used to support the members’ future retirement.

## The Ability to Borrow Through an SMSF

An SMSF may be able to borrow money to help purchase a commercial property through a limited recourse borrowing arrangement.

This means the fund may not need to have enough money to purchase the property outright. Its existing super balance may be used towards the deposit and purchasing costs, while an approved loan funds the remaining amount.

Borrowing can allow an SMSF to purchase a higher-value asset, but the fund must still maintain enough cash flow to cover loan repayments, property expenses and its other responsibilities.

## Greater Control Over Your Retirement Asset

One of the main attractions of an SMSF is having greater involvement in how the fund’s money is invested.

The fund’s trustees can research and select the commercial property, consider the location and tenant demand, and make decisions about how the asset fits within the SMSF’s long-term investment strategy.

This does not mean the fund can operate without rules. Every decision must be made for the purpose of providing retirement benefits to members and must comply with superannuation legislation.

## Rental Income Paid Into Your SMSF

Commercial property can provide regular rental income, which is paid directly into the SMSF.

That income may help the fund meet loan repayments and property expenses while gradually building the fund’s retirement assets. As the loan reduces, the SMSF may move closer to owning a substantial commercial property with less debt.

## Your Business May Be Able to Lease the Property

For eligible business owners, an SMSF may be able to own the premises from which their business operates.

The business can potentially lease the property from the SMSF, provided the property qualifies as business real property and the lease is properly documented at normal market rates.

Instead of paying rent to an unrelated landlord, the business may be paying rent into the owners’ SMSF to help build their retirement position. Strict rules apply, so the arrangement must be established and managed correctly by qualified professionals.

## A Tangible Asset for Retirement

Commercial property may offer SMSF members a tangible long-term asset with the potential to produce rental income and increase in value.

However, commercial property can also experience vacancies, changing values and unexpected expenses. The fund must consider loan repayments, liquidity, diversification and future retirement payments before proceeding.

Owning commercial property through an SMSF can be a powerful strategy for the right people, but it requires careful property selection, the correct structure and professional guidance.

Invest Realty Australia can assist with researching and sourcing suitable commercial property. SMSF setup, finance, accounting, legal and taxation matters should be handled by appropriately licensed professionals.

*This article provides general property information only and does not constitute personal financial, taxation, legal or credit advice. An SMSF property strategy may not be suitable for everyone. Seek advice from appropriately licensed professionals before establishing an SMSF, borrowing or purchasing property.*