Installment Warrants - Who to use?

[Wallym]

I have a SMSF which owns one rental property outright and also has cash assets of about $50,000. It currently has an income stream of a little over $2,000 pm.
I would like to purchase a property in the Port Stephens area using "Installment Warrants".
I am looking at 2 Bed townhouse for about $250,000 - returning about $200pw.

I phoned Wosrtpac and they were completely clueless.

Any recommendations as to who might be a good company for setting up this type finance?

 

[Qlds007]

How old is the property.

One of the lenders we use will only look at the deal if the property is under 5 years of age.

 

[Wallym]

I haven't actually decided on a property yet, but with only having $50,000 to use as a deposit for a warrant, I suspect I will be looking for something selling for under $300,000.
Therefore I am probably looking at an older place.
I am really in the early stages of learning how these warrants work and am, at this stage, just trying to get an idea of how viable this option is (the who and the how and the $, etc).

 

[JoannaK]

If you're specifically after the Warrants to enable SMSF to purchase, then I believe (but I could be wrong) that the only people doing it are Quantam ....and I believe they are accessible via financial planners (i know of one company in Wollongong who does it, but can't vouch for them).

essentially how it works is that the Warrant Provider buys the unit, and somehow you have some sort of entitlement to it once it's been paid off. They have quite stringent criteria that they work to before agreeing to allow a purchase to be completed.

Generally they will only allow new property to be purchased, within a certain price range, and generating a certain yield.

 

[buzzlightyear]

The costs of these loans (set up, ongoing) are not cheap. I am wondering whether it is worth while waiting until more mainstream lenders start entering the market and start providing some competition. (?)

 

[Qlds007]

JoannaK

Quantum are one of the issuers however 2 of the major Banking lenders are now offering such a product on a limited release basis through Financial Planners.

Key Features
• A simple way to leverage an investment in property through a limited recourse loan.
• The benefits of property ownership with an initial investment that’s a fraction of the property’s full value.
•You choose the property subject to valuation and the property being no more than 5 years old.
• Enhanced rental yields and, depending on your circumstances, depreciation benefits.
• Tax deductible interest payments.
• You can end the warrant or loan and take full ownership of the property at any time up to the maturity date by making a completion payment.
• There is no capital gains tax on transfer of the property to the investor.
• Your other assets are completely protected from risk.

Hope this helps.

 

[Pat]

Hi Wally M,

As Buzz has mentioned the more competitive products are still a few weeks away but when they are out you'll find they are a powerful investment tool for those who invest in property. I outlined in the December edition of API magazine how they work and some of their features. Find the article attached.

You will struggle with $50,000 to purchase a property with warrants though because you'll need about 30% which includes the 20% deposit plus stamp duty and legals.

 

[JoannaK]

JoannaK

Quantum are one of the issuers however 2 of the major Banking lenders are now offering such a product on a limited release basis through Financial Planners.

Key Features
• A simple way to leverage an investment in property through a limited recourse loan.
• The benefits of property ownership with an initial investment that’s a fraction of the property’s full value.
•You choose the property subject to valuation and the property being no more than 5 years old.
• Enhanced rental yields and, depending on your circumstances, depreciation benefits.
• Tax deductible interest payments.
• You can end the warrant or loan and take full ownership of the property at any time up to the maturity date by making a completion payment.
• There is no capital gains tax on transfer of the property to the investor.
• Your other assets are completely protected from risk.

Hope this helps.

Thanks for that Richard, very much appreciated!

 

[MikeF]

Leveraging SMSF's

In September last year the Federal parliament approved an amendment to the Superannuation Industry (Supervision) Act 1993 (the Schedule 3 to Taxation Laws Amendment Act 2007 which inserted a new subsection 67- 4A) which effectively allows Self Managed Super Funds (SMSF) to acquire property with leverage. Prior to this SMSF were not able to leverage property investments.

There is at least one lender that I know of that will be soon be in a position to fund IP (both resi & commercial) via SMSF as a consequence of the the above legislative amendemnets.

An important feature of this new SMSF funding arrangement is that it allows individuals to find their own properties. This is an important point as it differentiates from many others lenders who link up with developers often to sell stock using warrants.

The basic provsions including benefits of the new law can be found in an article by Lynch Meyer Commercial Lawyers (htttp://www.lynchmeyer.com.au/pdf/Taxation_Dec07.pdf).

When you borrow to purchase a negatively geared property investment, you get a tax deduction in respect of the interest you pay (less rental income received), but you have to repay the principal in post tax dollars.
Our new SMSF loan goes beyond negative gearing and provides “Super Leveraged Property Investment” where principal repayments are made virtually from pre tax dollars (that is, income taxed at the concessionary, 15% contribution tax rate).

To put all that another way, the cost of a $500,000 investment property, when purchased with a Seiza SMSF loan, would be less than $317,000 in post tax dollars.

The potential advantages of purchasing an investment property within an SMSF are further enhanced by the fact that, depending on the status of the SMSF at the time of disposal, the total gain should be entirely free of CGT (or, at worst, subject to an effective tax rate of 10%).

 

[MsBurnedByScam]

Seeking Further Information re SMSF to purchase IPs

Hi,

New here.

I read the threads about Warrants and IPs in SMSFs.

My question is not related directly, more off the track but to do with SMSFs.

I currently have a few different standard super policies that I have to roll over into one.
After uncovering a few of these lost policies through the ATOs Super seeker page, calling the super providers and getting my transfer/rollover paperwork, I got to thinking...
Q: Can I roll all my supers into a SMSF?
Q: Can I nominate to use these funds in the SMSF to purchase an investment property? (I have enough for a small deposit - maybe 5-10%)
Q: Where do I get the kind of advice - an accountant? The ATO? I simply would prefer to have my super funds invested in property and wonder how to go about this - and as I read in one of the threads, but not grasped, can I select the property, or can I get advice on what property to invest in?

Any directional advice (point me in the right direction) welcomed.
Thanks
T.

 

[deejay]

We are in the process of this. There are a couple of ways.

1. Buy an installment warrant off the shelf. In other words, you set up your SMSF, select and buy the property more or less as usual, and your lender handles establishing the instalment structure - they own the custodian company, they have a bare trust already established, and they just tell you how to tweak the purchase (usually by adding a clause to the sales contract). CBA does this through its Supergear product, the best I've seen. Unfortunately, your super fund has to have at least $300K in net assets first for the CBA product. If you have the $300K, this is a really painless way to go.

2. Set up the instalment warrant yourself. As well as the SMSF, set up another company, get a trust deed (we used an off the shelf one from Cleardocs), get it stamped, and then get a no-frills SMSF loan such as the one offered by St George. This one doesn't require high net assets and the max LVR for residential is 72%. You have to do your own legal research on this, because trust law is state based and thorny. The state revenue/duties office won't know what you're talking about - you have to ferret out what language they use, which usually derives from legislation. (Eg - in NSW they don't know what a bare trust it - they call it a resulting trust). You really need to get your head around what you're doing - no relying on govt and banks to get you through. But it can be done.

To the poster with a 5-10% deposit, that's probably not enough. These loans are no recourse by law - this means they can only take the property off your SMSF if you default, nothing else. So the banks want you to have a fair amount of equity.

Banks do not understand these products at branch level. You have to baby your lender and expect them to refer every question to legal. It's pretty painful, but worth it in the end.