Purchasing an NDIS property through an SMSF

If you’re thinking about investing in property through your self-managed super fund, you may be pleased to learn that specialist disability accommodation (SDA) is a possible SMSF property investment opportunity. 

Buying property with superannuation 

Many investors wonder if it’s possible to purchase property with their superannuation — it is possible, however, only through a self-managed super fund. SMSF members may use existing fund assets to purchase property (provided it suits their investment strategy), or they can utilise an SMSF loan. To satisfy superannuation laws, the structure of a regular home loan cannot be used, and instead a limited recourse borrowing arrangement is created.

A limited recourse borrowing arrangement (LRBA) involves an SMSF borrowing money through a separate trust to invest in assets, often real estate. Crucially, in the event of default, the lender's recourse is restricted solely to the assets purchased with the borrowed funds, safeguarding other assets within the SMSF from being utilised to settle the debt.

Purchasing house and land packages with an SMSF

When an LRBA is used, the ATO requires the loan is only utilised on a single acquirable asset — for example, an established property. When house and land packages are purchased, there are two parts to the finance contracts; the land and then the construction. This means that for compliance purposes, a house and land package is not a single acquirable asset, meaning an LRBA (the only type of SMSF loan available) cannot be used.

Thankfully, there is now a legal loophole to the single acquirable asset when it comes to house and land packages. We can help facilitate the conversion of a two-part contract into a single-part contract — making the house and land package a singular asset for the purposes of SMSF loans, ensuring the legal integrity of house and land packages.

Additional requirements for NDIS home finance 

When a regular investment property is purchased with finance, the lender will value the property based on similar properties in the area. The problem with this approach is the specialist disability accommodation (SDA) will be valued as though it’s a regular investment property, without taking into consideration the extra costs and value that comes with this specialised type of property. A regular lender may significantly undervalue the property, which can restrict the amount of finance they are willing to lend. 

The other thing regular lenders do not accurately assess is the rental income. They do not account for the additional SDA payments, only factoring in rental income equivalent to that of a regular residential investment property. This means when they calculate your ability to repay the loan, the lower cash flow may suggest that you cannot afford to make repayments on the loan size required. 

To overcome these issues, we work with property valuers who specialise in NDIS investment properties, ensuring accurate values are given to the property for lending purposes, as well as the rental income. 

We can help

While navigating the intricacies of SMSF property investment, it is essential to understand the limitations and requirements, such as limited recourse borrowing arrangements and lending challenges relating to property valuation and rental income assessment. With specialised knowledge and a network of experts, we can assist in navigating these complexities, ensuring compliance and maximising the benefits of investing in SDA properties within an SMSF framework.

Feel free to reach out to us today for a personalised discussion regarding your suitability for investing in NDIS property through an SMSF. We're here to assist you in exploring this opportunity further.

‍