Is a Construction Loan or Vacant Land Loan Acceptable for a SMSF Loan?

Australians have the opportunity to form self-managed super funds to finance their retirement. For the fund to grow, the money invested in the SMSF requires its own investing strategy. An SMSF receives the right to issue loans, but they can’t fund every project. SMSF loans cannot fund a vacant land loan nor a construction loan. The fund cannot accept the loans as collateral either. 

There are other SMSF loan security options. Vacant land doesn’t qualify because the loan cannot build on vacant land. Regulations state that SMSFs can only acquire or borrow a single acquirable asset. If the fund builds on vacant land, they’re improving the asset. In this case, the asset is the vacant land and the improvement is a new building.  

Commercial property is different from vacant land. It still has regulations, but there’s more leeway if one of the fund members runs a business that requires commercial property. Even then, the regulations overseeing SMSF loans and commercial property loans are strict. This move would have to be in line with the overall investment strategy of the fund. For example, a fund member could become their own landlord.

SMSF Loan Security Conclusion

There are several SMSF loan security options. Vacant land and construction loans, however, do not qualify as a security. An SMSF receives a lot of legal leeways to help it grow. There are also some restrictions attached. If you’re interested in security options for an SMSF loan, Mortgage House offers alternative solutions, such as a business loan. Contact our loan specialists to get started.