For Australians looking to take greater control of their retirement investments, commercial property through a self-managed super fund (SMSF) can be an attractive option.
Commercial property can offer potential benefits including rental income, longer lease arrangements and portfolio diversification. For business owners, an SMSF may also provide an opportunity to purchase premises that can potentially be leased back to their business, subject to strict superannuation rules.
But buying commercial property through an SMSF is very different from purchasing property in your personal name.
From lending requirements and deposit expectations to fund structures and compliance obligations, there is a lot to understand before deciding whether this strategy is appropriate.
Why do SMSF investors consider commercial property?
Commercial property can provide SMSF trustees with another way to diversify their investment portfolio beyond traditional asset classes.
Depending on the property and investment strategy, potential attractions can include:
- Rental income within the SMSF
- Longer commercial lease terms
- Diversification across different asset classes
- Potential long-term capital growth
- The ability, in certain circumstances, for a business owner to lease commercial premises owned by their SMSF
However, commercial property also carries risks, including vacancies, property expenses, market fluctuations and potentially lower liquidity.
Any investment should therefore be assessed in the context of the SMSF’s broader investment strategy.
Can an SMSF borrow to buy commercial property?
An SMSF may be able to borrow to purchase commercial property through a specific lending structure, commonly involving a Limited Recourse Borrowing Arrangement (LRBA).
SMSF lending is a specialist area and lenders can have significantly different requirements around deposits, property types, fund structures and servicing.
Borrowing capacity may depend on factors including the SMSF’s contributions, existing assets, rental income, expenses and the proposed property.
This makes it particularly important to understand your finance position before committing to a commercial property purchase.
SMSF commercial property for business owners
One feature that can make commercial property particularly interesting for some business owners is the ability for an SMSF to potentially acquire business premises and lease the property to a related business.
For example, rather than leasing premises from an unrelated landlord, a business owner may explore purchasing an office, warehouse or other eligible commercial property through their SMSF.
Strict rules apply to these arrangements, including requirements for transactions and leases to be conducted on commercial terms. Professional financial, legal and tax advice should be obtained before proceeding.
What should you consider before applying for an SMSF commercial property loan?
Financing commercial property through an SMSF requires careful planning.
Beyond the purchase price, consider the deposit required, borrowing costs, cash reserves within the fund, property expenses and whether the SMSF can comfortably meet loan repayments.
The property itself also matters. Different lenders can have different appetites for offices, warehouses, retail premises and other commercial assets.
Understanding these requirements early can help you determine what may be achievable before you begin seriously looking at properties.
Finding the right SMSF lending structure
SMSF commercial property lending can be more complex than a standard home or investment loan, and not every lender approaches it in the same way.
Connex Capital can help you assess your borrowing position, compare suitable SMSF lenders and navigate the finance process from initial assessment through to settlement.
We work alongside your accountant, financial adviser and legal professionals where appropriate, helping ensure the lending component fits within your broader SMSF strategy.
Considering commercial property through your SMSF?
Before making an offer, it can be valuable to understand your borrowing capacity and the lending structures available to you.
Speak with Fiona for a confidential discussion about your SMSF commercial property finance options.