Understanding SMSF Loans for Unit Purchases
As a bricklayer, you've spent years building solid foundations for others. Now it's time to build a solid foundation for your retirement. Using your self managed super fund loan to purchase a unit can be a tax effective investment that sets you up for retirement security.
An SMSF property loan allows you to access your super fund borrowing power through what's called a Limited Recourse Borrowing Arrangement. This means you can buy an investment property using your retirement savings while they're still growing, rather than waiting until you retire. For tradies like yourself who understand the value of property, this is a powerful wealth building tool.
Why Units Work Well for SMSF Investment Strategy
Units are particularly suited to SMSF residential property investments for several reasons:
- Lower maintenance requirements compared to houses
- More affordable entry price points
- Consistent rental payments from tenants
- Located in areas with strong rental demand
- Potential for capital growth over time
As a brickie, you know that a well-built unit in a good location is a solid investment. The same principle applies when you're using super to buy an investment property through your SMSF.
SMSF Deposit Requirements You Need to Know
When you're looking at SMSF Loans, the loan to value ratio (LVR) requirements are stricter than regular home loans. Most SMSF approved lenders will require:
- A deposit 20% to 25% of the property value
- SMSF LVR typically capped at 75-80%
- Sufficient funds in your super fund borrowing account
For example, if you're purchasing a unit worth $500,000, you'll need a deposit of $100,000 to $125,000 from your super fund. The remaining loan amount will be provided by SMSF specialist lenders who understand the unique structure of these loans.
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SMSF Residential Loan vs SMSF Commercial Loan
When purchasing a unit, you'll typically be looking at an SMSF residential loan rather than an SMSF commercial loan. The key differences include:
SMSF residential property loans are for units or houses used for living purposes. These generally have lower interest rates and are more readily available from banks and lenders across Australia. SMSF commercial property loans are for business premises and can sometimes offer different tax benefits, but they're not what you'll need for a standard residential unit.
Principal and Interest SMSF vs Interest Only SMSF
You'll need to decide between two repayment structures:
Principal and Interest SMSF loans reduce the loan amount over time. Your SMSF repayments include both the interest and a portion of the principal. This means you'll own more of the property sooner and pay less interest overall.
Interest only SMSF loans keep your SMSF repayments lower initially because you're only paying the interest rate costs. This can help with cash flow, especially if your super fund has rental income coming in. However, you'll eventually need to pay off the principal.
Many tradies working with Tradie Home Loans start with interest only options to manage their super fund's cash flow, then switch to principal and interest later.
The SMSF Loan Application Process
The SMSF loan application is more involved than a standard home loan. Here's what you'll need:
- A compliant self managed super fund with a corporate trustee
- An SMSF investment strategy that allows property investment
- SMSF Bank statements showing sufficient funds for the deposit
- SMSF compliance documentation
- Property that meets SMSF property rules
Your SMSF must also meet specific SMSF rules. The property can't be lived in by you or related parties - it must be purely an investment property generating rental income or capital growth.
Understanding SMSF Settlement Costs and Fees
Beyond the deposit, you'll need to budget for SMSF settlement costs including:
- SMSF loan fees charged by lenders
- Legal fees for setting up the trust structure
- Stamp duty on the unit purchase
- Building and pest inspections
- Conveyancing costs
These costs typically add another 3-5% to your purchase price. Make sure your super fund has enough cash to cover both the deposit and these additional expenses.
SMSF Tax Benefits That Matter
One of the biggest advantages of SMSF residential loans is the tax treatment. Your super fund pays tax at 15% on rental income and capital gains (potentially reduced to 10% if held for more than 12 months). Compare this to your personal income tax rate, which could be significantly higher.
These SMSF tax benefits mean more of your investment returns stay within your retirement savings, helping you build wealth faster. This is what makes it such a tax effective investment for many bricklayers looking to control retirement outcomes.
SMSF Offset Account Options
Some lenders offer an SMSF offset account, which can reduce the interest you pay on your SMSF Mortgage. Any money sitting in this offset account reduces the balance on which interest is calculated. For tradies with variable income, this can be a handy feature to have.
When to Consider SMSF Refinance
Just like regular home loans, you might want to review your SMSF property loan periodically. An SMSF refinance might make sense if:
- Interest rates have dropped significantly
- You want to access better loan features
- Your SMSF loan rates are no longer suitable
- You're switching from interest only to principal and interest
Many of the bricklayers we work with at Tradie Home Loans also explore options to expand their property portfolio once their first SMSF purchase is established.
Making Your SMSF Work for You
Purchasing a unit through your superannuation loan isn't just about buying property - it's about creating a retirement property strategy that gives you control and security. Whether you're just starting your career as a brickie or you've been in the trade for decades, an SMSF residential property investment can complement your other retirement savings.
The key is working with professionals who understand both SMSF compliance requirements and the unique financial situation of tradies. Unlike standard investment loans, SMSF property loans require specialist knowledge and access to SMSF approved lenders.
At Tradie Home Loans, we specialise in helping bricklayers and other tradies access SMSF Loan options from banks and lenders across Australia. We understand the trades industry and can guide you through the SMSF borrowing process, from understanding SMSF deposit requirements through to settlement.
Ready to use your super to purchase a unit and build your retirement security? Call one of our team or book an appointment at a time that works for you. Let's discuss how an SMSF loan can help you create the retirement you deserve.
