- Investments held inside your SMSF have to be in your fund’s name, not yours. This includes loans you take out to purchase property with your SMSF. Only funds registered as a Corporate Trust can apply for an SMSF loan and invest in property. This is because Corporate funds are a separate entity from the trustee and act as a business. If your fund is registered as an Individual Trust, you cannot apply for a loan or invest in property.
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You also need to set up a Bare Trust and Bare trustee for your fund. Required for all SMSFs wanting to invest in property. Separate trust for each asset.
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The biggest difference between an SMSF loan and home loan is the structure of the Limited Recourse Borrowing Arrangement (LRBA). The structure of these loans mean that the lender can only lay claim on the specific asset associated with the loan should the fund default that’s the limited recourse part.
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You can expect to be asked for a personal guarantee for the full loan amount. In the event the SMSF cannot make the monthly loan repayments, the risk to your personal assets is similar to if you had a standard home loan.
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Usually higher rates.
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While you are still paying off the loan, you are prevented from making any structural changes to the property. This means you cannot add a granny flat to the property or majorly renovate the kitchen. However, you are permitted to make improvements to the property that are crucial to its function. For example, if flood waters damage the carpet, you are allowed to re-carpet it.