Commercial property

SMSF Commercial Real Estate Loans | Savings.com.au

Basic criteria: a loan amount of $400,000, variable, fixed, principal and interest (P&I) real estate loans with an LVR (loan-to-value) ratio of at least 80%. However, the “Compare mortgages” table allows calculations to be made on the variables selected and entered by the user. All products will list the LVR with the product and price list which is clearly published on the product supplier’s website. Monthly repayments, once the basic criteria are modified by the user, will be based on the advertised prices of the selected products and determined by the loan amount, repayment type, loan term and LVR as entered by the user. user/you. *The comparison rate is based on a loan of $150,000 over 25 years. Please note: this comparison rate is only true for this example and may not include all fees and charges. Different terms, fees or other loan amounts may result in a different comparison rate. Rates correct as of January 17, 2022. See disclaimer.

Investing in commercial real estate through SMSF has always been more popular than residential real estate – although this is starting to balance out. Many SMSF lenders typically lend for commercial property, while far fewer also lend for residential property. So why would you want to invest in commercial real estate and how do commercial real estate loans for SMSFs work?

SMSF Commercial Real Estate Loans Explained

Ever wanted to be Tony Stark and own your own skyscraper? Using your self-directed super fund is one of the most accessible ways to invest in commercial real estate. And the good news is that there is a loan for that, and the loans usually come with much higher loan limits than other types of home loans. It is also common for small and medium-sized business (SME) owners to invest in commercial property through their SMSF and lease it to themselves by paying rent to the SMSF. Here’s what else you need to know about SMSF commercial real estate loans.

Loan Restrictions

Although not all are created equal, some lenders have certain restrictions on the type of commercial property you can invest in. Some lenders prohibit renovations, while many others also limit loans to “standard use” commercial properties. This includes offices, shops and warehouses, and may exclude development sites or vacant land.

Interest rate

An SMSF loan is what is called a limited recourse borrowing agreement, or LRBA. This means that in the event of default, the lender can only come after the asset used as collateral for the loan, rather than other investments in the SMSF.

As a result, SMSF commercial real estate loan interest rates are often higher than what you would find on a regular commercial real estate loan. It’s not uncommon for an SMSF loan to be a full percentage point higher – or more.

Costs

Oh the fees. This is lender specific, but don’t be surprised to find fees attached to your loan such as: Application Fee, SMSF Exam Fee, Appraisal Fee, Settlement Fee, Settlement Fee, Ongoing Fee, Fee discharge and other charges. According to your lender, by the time you secure the bag, you’re two thousand dollars out of pocket.

LVR for SMSF Commercial Real Estate Loans

Commercial real estate loans through SMSFs are generally limited to a loan-to-value ratio (LVR) of 70%. This means that a borrower must have a minimum deposit of 30%. While there are always exceptions to the rule, this is higher than SMSF residential real estate loans which typically require 80% LVR i.e. only a 20% deposit.

Satisfy the Australian tax authorities

Before investing in commercial property, you will need to ensure that it is “commercial property” to satisfy the ATO and its SMSF requirements. Under the business use test, the property must be used wholly and exclusively in one or more businesses. Farms with residential dwellings are still permitted, provided the dwelling is on land not exceeding two hectares and the primary use of the property is not for domestic or private purposes.

Other than that, the usual ‘single use test’ and ‘arm’s length’ requirements still apply, such as having the fund only for the benefit of members and trustees, and not renting property at a reduced rate. or family members.

SMSF Commercial Real Estate Lending Pros

  • Leverage: One of the biggest benefits is that you can use the money you don’t have on what is hopefully a high performing asset, and the return on investment outweighs the interest you pay. on your loan.
  • Access to a high rental yield: Commercial properties, especially high street shops, often charge extremely high rents. This can then be fed back directly into your SMSF, so you not only benefit from capital gains, but also from high rental returns.
  • Fiscal advantages: Superannuation carries special tax treatment in Australia, and having commercial property in your SMSF might be more advantageous than investing outside of your super – you simply cannot access your super before retirement.
  • Higher loan limits: SMSF residential real estate loans are often limited to $1 million, while for commercial properties they can be $4 million or more.

SMSF commercial real estate loan against

  • Higher interest rates: SMSF commercial real estate loans typically attract much higher interest rates than regular home loans, which can add hundreds or thousands to your loan repayment each month.
  • Market volatility: Commercial real estate is generally a much more volatile asset class than residential real estate. Certain events – such as a pandemic – could trigger high vacancy rates and a fall in asset prices.