Having a good understanding of compliance rules is crucial when SMSF investors are looking to invest in property, according to the head of a financial education provider.
Wealth Know How general manager Fiona Parker said purchasing a residential property such as a house or an apartment was a good example of the type of strict rules applying to the sector that individuals had to take into account.
“You are allowed to buy off the plan, for example, but you cannot buy vacant land and then build a house,” Parker explained.
“It is important to remember that if you’re borrowing, there can be no alterations that change the character of the property until the SMSF property loan is paid off.”
She pointed out SMSF trustees were able to invest in most established property categories, but added they needed to execute the transactions at arm’s length.
Further she recommended trustees and their advisers should take into account elements such as location, yield potential and the maintenance needs of a property before making the final purchasing decision.
“It’s safest to stick with residential properties that are ready to rent, as these can be justified as investments that will meet the investment objectives of a SMSF,” she said.
“Ideally, you should look for a reasonably new property, in a good location, with a healthy rental market and a diverse employment mix, which will help you attract a high quality of tenant.
“The property should also have strong long-term capital growth prospects and a relatively high rental return.”
