An SMSF property investment is one of the hottest trends in both the residential and commercial real estate scenes. Rarely you get the chance to use your retirement money to pay for the running costs of your home loan and boost your wealth creation because of incredible tax benefits.
Great rewards come with great risks, however. It should go without saying that this type of arrangement isn’t beneficial to everyone. Unless you make sure that all possible risks are well calculated before you dive in this form of investment, your SMSF investment strategy might work against you.
Compared to loans offered to traditional borrowers, Sentinel Property Group noted that SMSF property investment mortgages tend to cost more (though they're worth it). You must carefully consider this beforehand to see the real potential of your investment. In other financial products, you should keep shopping around to find favourable deals from different lenders.
As your repayments could come from SMSF funds, it must always be adequately liquid no matter what. Even in long periods of vacancy, losing your rental profits is never an excuse to skip or be late on your monthly payments. This is the reason you must choose your investment property thoroughly. Studying the potential of different markets is imperative to ensure high occupancy rate all year round. Without proper market analysis, investing through your SMSF might do more harm than good.
Little to No Property Alternations
As you would acquire the property under a limited recourse borrowing agreement, you’re not allowed to make certain changes on the property throughout the life of the loan — particularly if it’s going to alter its character. Improvements for the purpose of enhancing the property’s functional efficiency may be granted as long as they’re the funds don’t come from the borrowed sum.
An SMSF investment structure is beneficial in many ways, but it’s not without complexities. By all means, you should work with a reputable investment firm to assist you in this endeavour.