SMSF House Purchase + Development

Hi All,

Anyone know if either of these two can be done in SMSF.

Scenario 1
1. SMSF Purchases a property as investment, uses monthly super payments for the serviceability.
2. Then SMSF as a 'company' develops the investment into e.g. 2 townhouses, and sells to make profit like a developer. (interest to hear both if this is possible and also separately financing issues).
3. Would this above scenario be any different if instead of selling it rents out the 2 new townhouses it made

Scenario 2
1. SMSF Purchases a property as investment, uses monthly super payments for the serviceability.
2. A Development company you own outside of SMSF enters an agreement with the SMSF to develop the land. The development company constructs and develops, e.g. 2 townhouses. (it sources the construction loan etc)
3. The properties when developed get sold, the SMSF gets its share of returns. The development company gets its share of returns.

 

I don’t believe the first is possible as a smsf as it is not allowed to borrow to develop. As far as I know it could only work if the smsf had enough funds to construct in its fund and didn’t need to borrow.

I suspect the second is also not possible due to smsf rules and finance (ie can’t borrow for something you don’t own) but I’m just a layman.

 

what do you mean by this?

Sounds like there would be a loan involved. if so this strategy would be a breach of super law.

 

By SMSF 'company' I mean it would do the development itself as if it were any other development company. It'll pay all the development and construction costs.

 

that is confusing. perhaps just the word 'develop' explains it better. A SMSF is not a legal entity so it would be the trustee company that owns assets whether developing or just holding.

 

Unless there's already a DA on the property you run the risk of changing the nature of the asset which may also breach your SMSF deed.