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Common mistakes when buying an investment property in an SMSF–Tip 3

More and more investors are using their Self-Managed Super Fund (SMSF) to buy an investment property.

 Some of the most common mistakes people are making and how you can avoid them.

Renovations

Renovations that merely return the component back to a new condition are classified as ‘repairs’ for the purposes of the superannuation borrowing legislation.

Therefore, a cosmetic renovation that replaces the existing kitchen or the bathroom is allowable even with borrowed funds.

The mistake often made is to improve the kitchen by say extending the bench area or knocking down a non-load-bearing wall.

The latter two are deemed to be improvements and must use internal SMSF cash.

It is a simple matter to ask your builder to split the invoice to show the improvement as a separate piece of work which can then be funded with cash and not borrowed funds.

If a property is demolished and say a duplex is built or land is initially purchased and then a separate contract to build is entered into then these are changes to the original asset and cannot be done within the SMSF while there is still an outstanding debt on the property.

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Jason Gwerder
Thursday, 29 April 2021


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