Investing in commercial property can be a daunting process, and with so many funding options in Australia, it can be hard to know where to begin. If you really want to make this new venture work for you, it’s important you do it the right way. Using an SMSF (self-managed superfund) to buy a premises offers you lots of benefits, here’s why:
No landlords
It can be disheartening to pay out a significant amount of money each month to a third party. However, with an SMSF, you can effectively pay rent to yourself, as your funds will go towards your super fund and not into another person’s pocket, as is the case when using private lenders. This means you’ll be able to grow your investment more quickly. This rent can also be claimed as an expense when filling out tax returns as per normal commercial regulations. Within the SMSF, the rent is subjected to just a 15% tax, but deductibles on the lease are capped at 46.5%.
Additional tax benefits
If your property is held by the SMSF for over a year, when it’s sold, capital gains are only taxed at 10%. If you’re receiving a pension when you’re selling your property in the future, you won’t have to pay capital gains tax on the sale.
What’s the process of buying a commercial property using SMSF?
You’ll need to have the commercial property you wish to purchase valued by someone who is independent of your SMSF as well as qualified to do so. The selling price of the premises must also reflect the others currently on the market, as it’s important for the lease to be competitive in a commercial sense. Once purchased, rent payments will have to be made on time, despite being paid back into the SMSF, and will always need to meet the full amount. It’s important that the premises is used only for commercial purposes and is valued regularly following the sale. Ultimately, the property must continually offer benefits to all members of the SMSF for it to comply with its original purpose.
Are there any risks to consider?
As with any type of investment, there’s always potential downfalls. Because the property will be limited to commercial use, it may be more difficult to find a buyer for this market should it be more viable to sell the property than maintain it. Owners could also struggle with covering the costs of maintenance and insurance, which they will be liable for, as these can quickly mount up and put a strain on their finances.
However, one of the main things to consider is whether the investment will offer long term returns. Although it’s ideal for those wishing to run a business, the property may struggle to meet the requirements it set out to in the beginning. A large part of using an SMSF to invest in commercial property is the retirement gains members can benefit from, so if large amounts of the fund are focussed in this single asset, it can be a difficult goal to realise.
Being self-employed is undoubtedly an amazing thing– you're your own boss, you set your own hours and decide how you want to work each day.
However, just like everything else self-employment also has its own pros and cons.
There are several different types of problems associated with being self employed, and every self employed individual in Australia would agree with us on this.
These problems range from overcoming the temptation to constantly take four-day weekends to one of the biggest one- securing a home loan.
In particular, you might be unsure about how financing a commercial property investment differs to be regular mortgage.
The lenders consider the key criteria, such as:Your deposit and equity, if availableYour capacity to repay.
This includes all your incomes including the expected rental income from the commercial property.Details and conditions of the commercial property lease.The type of commercial property it is.
Whether it is an office, factory, or a warehouse, together with its location and value’s report.Tips You Should Know Before Applying For a Commercial Property Loan Specialized Commercial Lenders First up, it is important to know that while commercial loans can be less familiar among people, there are a variety of loan options available from a range of specialized commercial lenders.
The mainstream lenders will tend to automatically move the buyers of the commercial property into their commercial lending products.
9 out of 10 times, these specialized lenders are more competitive.
