The increased share market volatility and falling interest rates, are the reasons SMSF trustees are focusing more and more on the great benefits of investing in the American real estate market. While this certainly is an appealing deal, SMSF trustees must carefully consider every possibility. They need to consult with a reliable housing market adviser to make sure that the investment in the American real estate will support their overall investment strategy and will avoid unnecessary risks.
Any SMSF investment must comply with the superannuation rules. And, just like any domestic residential real estate, the overseas property as well cannot be purchased from a related party (family member, family entity or themselves). These rules apply to all assets, plus there are some additional things one needs to consider when choosing to invest into American real estate using their SMSF.
Consider The Different Laws And Customs
Before making the final investment, consider the law and customs as in some US states, authorities can sell properties where there are outstanding fees.
Don’t Forget About The Sole Purpose Test
Regardless of the type of the investment, it needs to be consistent with the sole purpose test. For example, a residential property in the US cannot be leased to a fund member or a relative of a fund member.
Consider The Risk Of ROI (Return Of Investment)
Any investment needs to be considered against the potential risk, the cash flow needs of the fund and the return of investments. For example, when investing in something big, you will also need to consider the exchange rate between the US and Australian dollar, the cost of flights in order to inspect the property and the risk that these overseas trips may be investigated by the ATO as a gap regarding the sole purpose test.
Local Real Estate Agent
When investing in American real estate or other overseas property, it is expected that the property would receive rent and the SMSF would pay the expenses related to the property. Doing this from Australia is not practical at all, so you may consider the possibility of hiring the services of a locally-based real estate agent.
Just like in Australia, this can happen in any other country. A foreign government can change the rules related to foreign investment and taxation.
In summary, investing in the US property is possible, but the SMSF trustees must take into account and address the risks. Before making your final decision, consult with a professional financial adviser regarding your SMSF and use the services of a reliable real estate company.