Need to know more SMSF to buy a property

1. 80% max LVR
2. Make sure the Trustee to both the Bare Trust and the SMSF Trust is a Corporate Trustee instead of an Individual Trustee
3. Bank fees are approximately $2,500
4. Interest rate is approximately 5.50%
5. Most lenders will require 10% surplus/buffer in the SMSF
6. Servicing/borrowing capacity is going to be your biggest hurdle - the benefit of using a lender like St George (and to some extend Macquarie) is that you are able to use extra contributions for servicing without needing to show history of the repayments (as you do in the case of most lenders)
7. Having an offset within an SMSF is very important long term as you cannot do equity releases within an SMSF
8. Make sure your lender selection is right from the beginning as refinancing is quite expensive within an SMSF
9. Make sure you have the Corporate entity on the Contract of Sale and not the SMSF entity
 
Once 20% deposit is paid the property should be positively geared so it may only be tying up 25% of the value of the property and the rest of the SMSF cash be be used to invest as per normal - or keep in the offset account.

SMSF can negatively gear too. A taxable loss can be used to offset other income of the fund - including contributions, saving 15% tax potentially.

A SMSF can also assist with negative gearing of your own income. If there is a $10k loss for example you could contribute another $10k from salary sac and reduce your personal income tax while saving tax on the contribution.
 
After our last purchase in SMSF we had no buffer . Wasn't mentioned as a condition at the time , but that was in late 2013 .

Cliff
 
Thank you all for reply. I have 100k in my super. If I roll over the amount into a new SMSF account and use 80k deposit to borrow 80% which 320k to purchase $400k property, is the surplus money (20k left) not enough for a lender's criteria?
 
Thank you all for reply. I have 100k in my super. If I roll over the amount into a new SMSF account and use 80k deposit to borrow 80% which 320k to purchase $400k property, is the surplus money (20k left) not enough for a lender's criteria?

I would suggest that is not enough of a balance to start a SMSF. You need money for set up cost, stamp duty and lender fees and you also need a buffer. And don't forget it may take a few weeks to find a tenant. And other costs such as a depreciation schedule report, a few repairs etc. You will have nothing left.
 
I would suggest that is not enough of a balance to start a SMSF. You need money for set up cost, stamp duty and lender fees and you also need a buffer. And don't forget it may take a few weeks to find a tenant. And other costs such as a depreciation schedule report, a few repairs etc. You will have nothing left.

It is said on some web sites that the minimum $200k is suitable for this strategy. In that, I should wait for another 10 years......
 
It is said on some web sites that the minimum $200k is suitable for this strategy. In that, I should wait for another 10 years......

Not totally true, depends what and where you wish to buy but you must understand ALL costs involved, so your team costs are also important here (like your accountant, financial advisor, bank lawyers, etc...).
Also, you can add more to Super via salary sacrifice or as Terry pointed out, via concessional or non-concessional contributions, so you could increase the Super balance sooner than 10 years! Loans are also possible, but I presume you are just starting out so we will address the basic simple structure, right?

I am helping out a family member with $160K balance, but the purchase is to be around $350K-$400K around QLD. It also depends upon your serviceability and whether you have the structure in place already.

1. You need to setup SMSF with a Corporate Trustee.
2. If you have a SMSF, then you need to check whether existing Deeds are compliant for borrowing.
3. You need a Corporate Trustee, a company not one or joint individuals.
4. There's an ongoing accountant fee, also ASIC for corporate trustee, and auditor fee.
5. For borrowing with funds, you will need a new Bare Trust with Corporate Trustee, thus again will involve, ASIC and accountant fee.
6. Yes, banks have charged me around $2,000 but that was taken out from the loan, cost of borrowing, for their lawyers.
7. Then you need to add the normal acquisition fees when purchasing the property.
8. Remember, this is based on you having 20% for deposit and 5% for the fee, of course, subject to bank's valuation rather than what you plan to pay for the property. Any short falls may need to be supplemented and the serviceability must be there.

So $100K may be at this stage short, but it really depends what purchase and investment you wish to make?

I know of family member's friend who bought property next door to PPOR via SMSF with borrowing, so when paid off and in the future, perhaps may subdivide or develop the land (currently not permitted to change the title of SMSF with borrowing), for around $280K....

I would though to recommend around $150K so at least you can plan to supplement your SMSF balance first, if you really wish to concentrate your effort there.

Good luck!
 
It is said on some web sites that the minimum $200k is suitable for this strategy. In that, I should wait for another 10 years......

You may also consider joining with others - but get some advice about this as many issues. A SMSF can have up to 4 members.
 
Not totally true, depends what and where you wish to buy but you must understand ALL costs involved, so your team costs are also important here (like your accountant, financial advisor, bank lawyers, etc...).
Also, you can add more to Super via salary sacrifice or as Terry pointed out, via concessional or non-concessional contributions, so you could increase the Super balance sooner than 10 years! Loans are also possible, but I presume you are just starting out so we will address the basic simple structure, right?

I am helping out a family member with $160K balance, but the purchase is to be around $350K-$400K around QLD. It also depends upon your serviceability and whether you have the structure in place already.

1. You need to setup SMSF with a Corporate Trustee.
2. If you have a SMSF, then you need to check whether existing Deeds are compliant for borrowing.
3. You need a Corporate Trustee, a company not one or joint individuals.
4. There's an ongoing accountant fee, also ASIC for corporate trustee, and auditor fee.
5. For borrowing with funds, you will need a new Bare Trust with Corporate Trustee, thus again will involve, ASIC and accountant fee.
6. Yes, banks have charged me around $2,000 but that was taken out from the loan, cost of borrowing, for their lawyers.
7. Then you need to add the normal acquisition fees when purchasing the property.
8. Remember, this is based on you having 20% for deposit and 5% for the fee, of course, subject to bank's valuation rather than what you plan to pay for the property. Any short falls may need to be supplemented and the serviceability must be there.

So $100K may be at this stage short, but it really depends what purchase and investment you wish to make?

I know of family member's friend who bought property next door to PPOR via SMSF with borrowing, so when paid off and in the future, perhaps may subdivide or develop the land (currently not permitted to change the title of SMSF with borrowing), for around $280K....

I would though to recommend around $150K so at least you can plan to supplement your SMSF balance first, if you really wish to concentrate your effort there.

Good luck!

It might be better if I top up another 50k also buy lower price of house.
 
No. Companies will do the work for you but they will charge for it too!
Most here are active rather than passive investors (I think?), so we like to do it ourselves with guidance of the right team (accountant, broker, lawyer, financial advisor, etc..).
It took me 3 years to research, and change some of my team but eventually I did it!
 
Thank you all for reply. I have 100k in my super. If I roll over the amount into a new SMSF account and use 80k deposit to borrow 80% which 320k to purchase $400k property, is the surplus money (20k left) not enough for a lender's criteria?

Hi there,

There is no minimum balance in a SMSF, it really depends on your investment strategy. In the above example, sure it can be done, however with the buffer, forget about the lender, worry about the member, the buffer will need to consider the following:
1. Does your rent cover your interest plus expenses? i.e are you relying on contributions to service debt - if yes, generally a poor investment
2. Worst case scenario: what is you have 10k in cash and you lose your job - how long can you last with no rent and no job?
3. Can you contribute into the fund and maximise your contribution caps (concessional $30k if less than 50 yrs and $35k if older than 50 years of age).

Some lenders may implement 10% liquidity however that will be at settlement. So many times I see settlement 'tight', with little or no money left for whatever reason i.e valuation coming in lower than purchase price, which reduced loan amount.

Other points:
1. Get pre-approval before you buy
2. Get help - a phone call will be free, don't do it yourself
3. Set up the SMSF and bare trust before you buy and if QLD this needs to executed with company set up prior to contract of sale
4. The name on the contract of sale will differ in each state, seek advice as this can have adverse consequences on transfer/ sale of the asset
5. All SMSF loans require a personal guarantee - this is unfortunate but real
6. Re-assess you investment strategy at all times and pay the deposit from your smsf not personal funds
7. For existing funds, update your Trust Deed.
8. Get a good broker and conveyancer they knows SMSFs
9. Have fun and celebrate !

For existing borrowings, with a old SMSF lender consider a refinance to another lender to obtain a better rate and with features to suit you (i.e offset)

The above is not a complete list

Hope that helps

Cheers Ivan
 
In my view liquidity is one of the key issues that has been ignored by lenders in the past. Let alone the issue of a property being vacant for 3 months or longer and no rent coming in, have you allowed for unexpected capital expenses such as a new hot water system, or a capital call from the body corporate as well as normal large lump sum expenses like land tax, council rates etc.

The other aspect often forgotten is when your own contribution is made to the SMSF. Many employers will only contribute quarterly so you need to make sure you know and factor that in.

The lenders that offer a 100% offset should be seen as attractive as the differential rates between cash management or term deposit accounts and mortgage rates are wide at the moment.

There are some very generous tax benefits under current super rules to buy property with a SMSF environment but there are equally some significant restrictions as well to an investor trying to build a property portfolio. Get good advise from a range of professionals and do your own due diligence to make sure it works for you.
 
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