Renovations

on

property

in

super

/

dual

income

property

The laws changed in 2011 and you are now able to renovate and improve property inside of a self-managed super fund (SMSF) where a loan is used to assist in purchasing the property.

Previously, you were unable to easily improve or renovate property in SMSF with a loan.

Although SMSF trustees are able to renovate investment properties owned by their super fund, they still need to be careful that they do not fundamentally alter the character of the asset (property).

So you are allowed to replace the kitchen, redo the flooring of the house or add a granny flat to the property.

However, you are not allowed to change the property from residential to commercial or knock down the property and rebuild as this changes the character of the asset and is not allowed.

In addition, any improvements and renovations cannot be funded with borrowed money, you will need to have sufficient cash reserves in your SMSF to meet these costs.

For clients who wish to accumulate wealth via a property based strategy, we have assisted clients setup a self managed super fund and with a conservative level of borrowing, undertake the dual income strategy whereby we purchase an older property in the North-West, West and South-West of Sydney and construct a granny flat dwelling. Gross rental returns vary between 8% to 15% depending on the purchase cost, renovation cost and market rent. However in most cases the above strategy results in a positively geared investment (i.e. generating net income) for the self managed super fund.

Please seek professional accounting advice in relation to any potential work on a SMSF property to ensure that you remain within the scope of the allowed works under SMSF legislation.

If you would like to discuss self managed super funds or dual income property strategies, please complete the contact form on the right to get in touch with James.