SMSF loan Wollongong

Yes, through a limited recourse borrowing arrangement, commonly called an LRBA. This is the only borrowing structure superannuation law permits for an SMSF acquiring an asset.

How an LRBA is structured

The property is held in a separate holding trust, often called a bare trust, with a corporate trustee. The SMSF holds the beneficial interest and makes the repayments. The lender's recourse is limited to that single asset, so if the loan defaults the lender cannot pursue the fund's other assets.

Residential versus commercial

Commercial property used in a member's business can be acquired from a related party, which is why many owners combine this with buying their own premises. Residential property generally cannot be acquired from a related party, and no fund member may live in or rent it.

Sequence matters

Setting the structure up in the wrong order, such as signing a contract before the holding trust exists, can cause serious compliance and duty problems. Our page for SMSF property investors in Wollongong covers the setup. Speak to us before you sign anything.

SMSF lending requires a considerably larger deposit than a standard home loan, plus a cash buffer the fund must retain after settlement.

Loan to value ratios

Lenders apply lower maximum LVRs on both residential and commercial SMSF purchases, with commercial lower again than residential.

The liquidity buffer

A minimum balance held in cash or liquid assets to cover repayments, insurance, rates, fund administration and audit costs if the property is vacant. Requirements vary by lender and are usually expressed as a percentage of the fund balance or a set number of months of repayments.

How servicing is assessed

On the fund's income, being employer and member contributions plus expected rent, with a buffer applied. Contribution caps limit how much can be added each year, which in practice caps how far servicing can be stretched. Choosing a strong yielding location matters, so our research on best rental yield suburbs in Wollongong is a useful starting point.

The realistic minimum fund balance is higher than most people expect, and we will tell you plainly if the numbers do not work.

The restrictions are significant and breaching them carries real penalties. The core rules:

• No fund member or related party may live in a residential SMSF property, even at market rent

• Residential property generally cannot be purchased from a related party

• Commercial property used wholly and exclusively in a member's business can be leased to that business, but only on genuine arm's length terms with a formal lease and market rent actually paid

• Borrowed funds cannot be used to improve the asset. Repairs and maintenance that restore it are permitted, improvements that change its character are not

• The asset must be a single acquirable asset, which affects purchases involving multiple titles

• Everything must be at arm's length and in line with the fund's investment strategy

What this rules out

Because borrowed funds cannot improve the asset, construction and development strategies do not work inside an LRBA the way they do outside one.

These rules are set by superannuation law, not by the lender. We arrange the finance, but the fund's compliance sits with your accountant, SMSF specialist and licensed adviser.

SMSF lending costs more than standard residential lending at every stage, and the fund carries ongoing compliance obligations on top of the loan.

Loan costs

Interest rates are typically higher, establishment and legal fees are greater because of the holding trust structure, and lenders often charge specific SMSF application and annual fees.

Fund obligations

Annual financial statements, an independent audit, an ATO return, actuarial certificates in some cases, plus rates, insurance, strata levies, management fees and maintenance. Those costs continue whether or not the property is tenanted.

Cash flow discipline

The fund must meet repayments from contributions and rent without breaching contribution caps, and vacancy needs to be planned for rather than hoped against.

Refinancing an existing LRBA is possible but the lender panel is smaller than for standard refinancing, so choose a lender at the outset who will still be competitive in five years. See our SMSF property investors page for more.

We are not licensed to advise on whether an SMSF purchase is appropriate for you. That advice must come from a licensed financial adviser, and we work with yours.