Over recent years Self-Managed Superannuation funds have become incredibly popular. They give you greater control over your super, which can help you make your money work better for you and your family. With this increase in popularity has come a growing interest in property investments. Those investments are not without their difficulties, however.
Investing in property is appealing, and it gives a real alternative to the standard investments of shares or fixed interest investments. The problems arise when you don't follow the rules on the investments. Many of the issues are administrative, but they can get you into difficulty up to and including getting your SMSF classified as non-compliant.
So, to help you stay on the right track, here are our top 5 SMSF property investment mistakes.
1. Buying In Your Name
This is a simple mistake to make - you are sitting ready to make the sale and are keen to get the deal over the line. You sign up, because it is you who is buying the property, right? Well, not exactly. For your investment to remain within the rules you must put the property in the name of your SMSF. If you have made this mistake you can fix it, but it is not an easy process to go through. It is much easier to put the property in the correct name in the first place.
2. Not Buying A Single Acquirable Asset
This mistake involves buying a property that is sub-divided, or that has more than one title. You cannot buy this sort of property for your SMSF. In addition, you cannot buy property that has one title but where it could be sub-divided in the future. The best advice is to double-check if you are in doubt, before you buy.
3. Getting The Timing Wrong
You cannot buy a property for your SMSF until a trustee or holding trust is set up. This usually occurs when people are eager to do a deal on a bargain property that they have found. You have to get the sequence right first, though. If you are planning or thinking about buying property for your SMSF, make sure you have everything in place before you start.
4. Buying From Yourself Or A Relative
This is straightforward but it still seems to trip up a lot of people. You are not allowed to buy a property for your SMSF from a relative, or from yourself. There is an exception if the property is used to run a business, but strict rules apply in this situation too. In general, though, you can't buy from within your family.
5. Buying Then Building
You cannot get a loan for your SMSF to buy a plot of land, and then use some of the loan to build on it in order to increase its value.
As you can see, these are generally not complicated issues, and more often than not those who are in breach of the rules are not trying to beat the system or act in a fraudulent way. Instead, they are about administration, so ensure you know the rules.
