Australia’s love affair with property only deepened when SMSF’s were permitted to borrow money to invest in property in 2007.
The ATO data reveals nearly 1 million Australians are SMSF trustees and they hold one third, or $520.5 billion, of the national $1.7 trillion in superannuation funds.
Increasing popularity of SMSF property investment has come hand-in-hand with a rise in reported scams.
SMSF’s are being targeted by sophisticated fraudsters who go to great lengths to deceive, including sending information packs to victims and setting up fake websites to appear legitimate. They are also offering free holidays and giveaways to investors to entice them.
In a speech at the Self-Managed Superannuation Professionals’ Association of Australia last year, Australian Crime Commission executive director David Lacey said up to 10 victims a week in Australia were losing savings from $35,000 to $4 million.
Confusion around the rules and regulation of property investment using SMSF’s is to blame for much of the deception, experts say.
There are some golden rules to avoiding costly mistakes –
- Property purchased through an SMSF cannot be lived in by you, any other trustees or anyone related to the trustees, no matter how distant the relationship.
- Don’t buy a “renovator’s delight”. Borrowed funds can be used for property maintenance but cannot be used to improve a property.
- Get professional advice.
Borrowing through an SMSF is not as straightforward as a normal home loan and comes with much stricter rules. SMSF’s are limited recourse loans, so in case of default, the bank can access the investment property and any other property securing the loan.
To ensure a safe entry into property investment with an SMSF, get professional advice, plan an exit strategy and make sure it’s within the guidelines of your investment strategy.