Top Tips to Use Your SMSF to Purchase a Storage Facility

Why Storage Facilities Make Sense for Tradies

As a plumber, you know the value of having secure space for your tools, equipment, and materials. But have you considered purchasing a storage facility through your self managed super fund? It's a tax effective investment that can serve dual purposes - providing storage for your business needs while building your retirement savings.

Using super to buy an investment property like a storage facility can be a clever wealth building strategy. You're essentially putting your superannuation to work in a way that aligns with your industry knowledge and needs.

Understanding SMSF Commercial Property Loans

When you're looking at purchasing commercial property through your SMSF, you'll need an SMSF commercial loan. These work differently to standard investment property loans. The loan is structured as a Limited Recourse Borrowing Arrangement, which means if something goes wrong, the lender can only claim against the property itself, not your other super fund assets.

The SMSF deposit requirements are typically higher than residential purchases. You'll usually need a deposit of 25% to 30% for commercial property, though some SMSF specialist lenders might accept a deposit of 20% depending on the property and your circumstances. This affects your loan to value ratio (LVR), which is a key factor lenders consider.

SMSF Property Rules and Compliance

Before you get too excited, it's important to understand the SMSF rules around property purchases. Your SMSF investment strategy needs to show that the purchase aligns with your retirement goals. The property must be purchased by a corporate trustee or individual trustees of your fund, and it needs to meet SMSF compliance requirements.

Here are the key SMSF property rules to keep in mind:

• The property cannot be used by you personally before retirement
• You can't buy the property from yourself or related parties
• The property must be held for investment purposes
• Your super fund borrowing must be structured correctly
• All rental payments must go into the SMSF

However, once you reach retirement and meet certain conditions, you may be able to use the facility or sell it under more flexible terms.

How SMSF Tax Benefits Work

One of the biggest advantages of buying property with super is the tax treatment. Your SMSF only pays tax at 15% on rental income and capital gains (if held for more than 12 months). This is significantly lower than most tradies pay on their personal income. These SMSF tax benefits can make a real difference to your retirement security over time.

If you're using an interest only SMSF loan, the interest rate payments are tax deductible within the fund. Alternatively, a principal and interest SMSF loan helps you pay down the loan amount faster, building equity in your retirement property strategy.

The SMSF Loan Application Process

Applying for SMSF Loans is more involved than regular home loans. You'll need to work with SMSF approved lenders who understand the complexity of super fund borrowing. The process typically requires:

1. Trust deed and SMSF compliance documentation
2. SMSF Bank statements showing adequate funds for deposit and SMSF settlement costs
3. Proof of rental income or projected returns
4. Your SMSF investment strategy
5. Evidence of your corporate trustee structure

At Tradie Home Loans, we can help you access SMSF Loan options from banks and lenders across Australia who specialise in commercial property for tradies. We understand that as a plumber, you have specific needs when it comes to storage facilities.

Structuring Your SMSF Property Loan

You'll need to decide between interest only SMSF and principal and interest SMSF repayments. Interest only loans keep your SMSF repayments lower, which can help with cash flow if rental payments are modest initially. However, principal and interest loans build equity faster.

Some lenders offer an SMSF offset account, which can help you manage funds more efficiently. This allows surplus cash in your SMSF to offset the loan amount, reducing the interest you pay while maintaining access to those funds.

Your SMSF loan rates will depend on several factors including the LVR, the property type, and market conditions. Working with a mortgage broker who specialises in SMSF loans for tradies ensures you're getting appropriate options for your situation.

Storage Facilities as an Investment Strategy

Storage facilities can be solid performers in a property portfolio. They typically require less maintenance than SMSF residential property, have multiple tenants (reducing vacancy risk), and often have longer lease terms. For plumbers, there's the added benefit of understanding exactly what makes a good storage facility.

The property can generate rental income that flows back into your superannuation loan, helping to cover SMSF repayments and SMSF loan fees. Any surplus contributes to your retirement savings. This makes it a more sustainable approach to control retirement outcomes.

Considering SMSF Refinance Options

If you already have property in your SMSF, you might consider SMSF refinance to access better SMSF Mortgage rates or release equity for additional purchases. This is similar to the concept of expanding your property portfolio outside super, but with the added tax advantages.

Refinancing can also help if you want to switch from interest only to principal and interest, or vice versa, depending on your fund's cash flow position.

Getting Started with Your SMSF Commercial Loan

Purchasing a storage facility through your SMSF isn't for everyone, but for plumbers with established super balances who understand property and want more control over their retirement investments, it can be a worthwhile strategy.

The key is working with specialists who understand both SMSF borrowing and the commercial property market. You'll need to ensure your fund has sufficient cash flow to meet SMSF repayments, even during vacancy periods.

If you're also considering other investment options, you might want to explore investment loans for tradies or buying your first investment property outside of super as complementary strategies.

Remember, while your SMSF gives you more control, it also comes with greater responsibility. You need to ensure ongoing SMSF compliance and keep proper records. But for tradies who want to take charge of their financial future, using a self managed super fund loan to purchase commercial property can be a powerful wealth building tool.

Call one of our team or book an appointment at a time that works for you. We'll walk you through the process of accessing SMSF property loans and help determine if purchasing a storage facility aligns with your retirement goals and circumstances.