In Part 2 of our property series, we considered one funding option which involves an SMSF borrowing to acquire real property. Although permitted by law, the risks and complexity associated with borrowing to invest in property means that it is not a suitable strategy for many SMSFs.

As an alternative funding option, SMSFs may wish to seek specialist advice which considers investing in property, in conjunction with other parties. In this article, we look at co-owning real property with another party, including members, under a tenants-in-common structure.

What is a tenants-in-common arrangement?

Where your SMSF acquires real property as a tenant-in-common, your SMSF will own a fixed distinct proportion (or fraction) of the property. Each tenant’s interest is separate and distinct from the other owners which allows each owner to dispose of their share independently of the others.

It also means that the ownership between the different parties can be held in different proportions. For example, your SMSF could own one third of the property and another party could own the other two thirds.

The ability to apportion the income and expenses associated with the property between investors, based on their fractional interest in the property, also makes the arrangement easy to administer. The SMSF would simply disclose its share of net income and expenses, in its tax return each year.