SMSF Loans: Critical Considerations Before Proceeding

Market Volatility Risks

What happens if the stock market drops significantly before your rollover to SMSF?

If there's a sudden 10-20% market decline just before your fund transfer, you'll have substantially less capital available for your investment strategy. This can dramatically impact your borrowing capacity and overall investment plan.

Hidden Requirements

Liquidity Requirements Some lenders impose strict liquidity requirements that aren't always disclosed upfront. This means you might need to maintain $30,000-$50,000 in cash within your fund, which significantly affects your available investment capital. Unfortunately, some brokers fail to mention this critical requirement at the outset.

It's important to note that liquidity requirements vary between lenders—some have them, others don't. Always confirm this detail before committing.

Insurance Considerations

Age and Insurance Implications If you're in your late 40s with life insurance established in your industry super fund, you need to factor in the funds required to maintain these policies. When calculating your purchase budget, you must account for the $10,000-$30,000 that should remain in your super fund to maintain your trauma and life insurance coverage.

Age significantly impacts insurance premiums. If you close insurance policies established at age 28 and reopen them at age 48, your premiums will increase substantially. This is why collaboration between your accountant and financial planner is crucial—they can analyze these details thoroughly while brokers typically focus on the broader aspects.

Property Selection Risks

Be cautious of brokers who provide general property parameters without considering SMSF-specific limitations. Problematic purchases might include:

• Untenanted commercial properties

• Niche commercial properties (childcare centers, rooming houses)

• Regional locations with limited demand

The SMSF lending market is considerably smaller than the residential lending space, with far fewer lenders available. This restricts your options and increases risk if not properly managed.

Professional Collaboration is Essential

For successful SMSF property investment, your key advisors must work together:

• Broker

• Accountant

• Financial planner

All three must maintain a conservative approach and coordinate closely. As a professional in this space, I consistently decline high-risk or complex arrangements in the SMSF sector.

Conclusion

SMSF property investment can be rewarding when executed correctly, but requires careful planning, conservative decision-making, and coordination between financial professionals. Always insist on comprehensive information before proceeding with any SMSF investment strategy.

This information has been prepared by PHA Financial Services and does not take into account your objectives, financial situation or needs. Before acting on this information you should consider whether it is appropriate to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. The information provided was accurate at the time of publication and changes in circumstances after a document is published may impact on the accuracy of information. Some information may have been collated from various third parties and we make no assertion that the information was originally ours.