While an SMSF may borrow money to purchase a property using a limited recourse borrowing agreement (LRBA), there are strict regulations surrounding the use of borrowed funds to renovate and improve properties. While you may be able to purchase an older property and renovate it using borrowed money, you are restricted from ‘improving’ the property, for example by building an additional storey or adding a swimming pool. If you are unsure as to whether the changes you have planned would be considered an ‘improvement’, it is advisable to seek the advice of the ATO.
You are, however, permitted to improve a property using funds from other sources, typically the accumulated contributions to the fund. For this reason, if making improvements to the property is central to your investment strategy, you need to ensure that your fund has sufficient cash flow to see these changes through.
Here are some other tips for renovating a property owned by your SMSF:
-All of the materials must be purchased in the SMSF name, even if you are carrying out the renovations yourself
-You may not be paid for any work you complete unless you are a professional tradesman who offers the same services to the public
-you may not live in the property at any stage, even if you are renovating it yourself