For business owners considering property as part of their long-term wealth strategy, a self-managed super fund (SMSF) may provide an option to invest in commercial property.
While rules around SMSF borrowing and property investment have changed, commercial property remains an area where SMSF borrowing arrangements may be available, provided the relevant superannuation and lending requirements are met.
Can an SMSF Buy Commercial Property?
Yes, an SMSF can potentially acquire commercial property using a borrowing arrangement, subject to the applicable superannuation rules and lender requirements.
This can include premises such as:
- Offices
- Warehouses
- Factories
- Retail premises
- Professional suites
- Other eligible commercial properties
One strategy that may appeal to business owners is for the SMSF to purchase the property and then lease it to the business.
This can potentially allow the business to operate from premises that are held within the SMSF while building a long-term asset for the fund.
How Can the Strategy Work?
A typical structure may involve the following:
1. The SMSF purchases the commercial property
The SMSF acquires an eligible commercial property using available superannuation funds and, where permitted, an appropriate borrowing structure.
2. The business leases the property
The business may lease the premises from the SMSF under a commercial lease arrangement, subject to the relevant superannuation rules.
3. Rental income is paid to the SMSF
The business pays rent under the lease, with the rental income contributing to the SMSF’s investment returns and potentially helping meet loan commitments.
4. The property becomes a long-term SMSF asset
Over time, the property may form part of the SMSF’s investment portfolio and retirement strategy.
Why Might a Business Owner Consider It?
For some business owners, owning their business premises through an SMSF can provide a combination of business and investment considerations.
Potential benefits may include:
Greater certainty over business premises
Instead of relying on a third-party landlord, the business may have greater control and certainty over its premises, subject to the terms of the lease.
Building a retirement asset
The commercial property may form part of the SMSF’s broader retirement investment strategy.
Potential rental income
Rent paid by the business can provide income to the SMSF, although the arrangement must comply with applicable rules and be appropriately structured.
Separating the property from the operating business
Owning the premises separately from the operating business can potentially provide a different structure for holding a long-term business asset.
However, these potential advantages need to be considered alongside the costs, risks and regulatory requirements.
SMSF Commercial Property Isn’t Suitable for Everyone
An SMSF property strategy is not automatically the right choice for every business owner.
There can be significant complexity involved in establishing and maintaining an SMSF borrowing structure. There may also be additional legal, accounting, financial and lending considerations.
Business owners should consider factors such as:
- The SMSF’s investment strategy
- Cash flow and loan commitments
- Property costs and ongoing expenses
- Liquidity requirements
- Loan structure and lender requirements
- The business’s ability to meet commercial rental commitments
- The long-term retirement strategy
- Superannuation compliance requirements
- Potential risks if the business circumstances change
It’s also important to understand that borrowing through an SMSF is different from obtaining a standard commercial property loan.
Commercial Finance for SMSFs Can Vary Between Lenders
Not all lenders assess SMSF commercial property transactions in the same way.
Loan-to-value ratios, acceptable property types, borrower structures, servicing requirements, interest rates, loan terms and documentation requirements can differ between lenders.
This is where understanding the lending market can be valuable.
A mortgage broker can help identify potential lenders and compare available commercial finance structures based on the circumstances of the business and SMSF.
Get the Structure Right Before Proceeding
Buying commercial property through an SMSF is a significant long-term decision. The right structure will depend on the SMSF, the business, the property and the borrower’s overall financial position.
Before entering into a transaction, it’s important to obtain appropriate financial, tax and legal advice, as well as understand the lending requirements.
A broker can assist with the finance side of the process, including discussing potential lenders, comparing loan structures and helping business owners understand what information may be required for an application.
Considering Commercial Property Through an SMSF?
If you’re a business owner considering purchasing your business premises through an SMSF, it’s worth understanding your finance options before committing to a property or structure.
We can help you explore potential commercial lending options and compare different loan structures that may be available.
Get in touch to discuss your commercial property finance options.
Important information: This article provides general information only and does not constitute financial, legal, tax or superannuation advice. SMSF strategies are subject to superannuation laws and individual circumstances. Appropriate professional advice should be obtained before proceeding.
Lending subject to lender approval, eligibility, terms and conditions. Fees and charges may apply. Approval is not guaranteed.
