SMSF Loans for Residential and Commercial Properties

 

SMSF Loans for Residential and Commercial Properties

 

One of the best things about an SMSF is that you can set up (pre approval) from the many of the SMSF Loans available to buy either commercial or residential a property. And many banks and financial organizations in Australia offer free information about SMSF, investment options and SMSF loans.

The SMSF concept is one of the fastest growing in the financial sector and many individuals are considering it to be their primary retirement plan.

SMSF Loans for Residential Properties

Residential SMSF Loans

You would have to agree with me ….
Australians have a great fascination with investing in residential property. And we have seen an increase in everyday Aussies like you and me investing in bricks and mortar of a residential house to increase their wealth.
And now with the government changes to the superannuation laws in the 1990’s there is now a provision which enables Self managed super funds buying property to use what is called a Limited Recourse Borrowing Arrangements i.e. LRBA.

LRBA’s are a little bit stricter in the way the funds are allowed to be borrowed, for one there are higher levels of equity (cash deposits) requirements compared to loans outside a SMSF. Generally, most lenders want a minimum of 20% deposit for a residential property being purchased in a Self Manged Super Fund.
Also any property purchased with a LRBA in place requires a certain legal structure to hold the property while there is a loan. The property is held in a bare trust which purposely made to hold just this one security until the loan is paid off. When the LRBA is paid the bare trust is dismantled and the property ownership is transferred to the SMSF trust.

SMSF Loans for Commercial Properties

Why commercial …. Bigger returns?
Investing in commercial property for everyday Aussies like you and me is the new frontier of property investing, either directly or in a SMSF.
And there is some great SMSF loans products available for self managed super funds to take advantage of to buy good commercial properties.
While there is still a requirement for a LRBA and the correct trust structures in place, SMSF loans for commercial properties can have fewer demands on the self managed super fund for a certain amount left in the fund after the purchase. Also with some lenders there is no requirement for the SMSF loan to service outside the fund.

Let Me Explain………..
With residential LRBA’s most lenders require the fund have a minimum amount left in the fund after the purchase either a fixed amount say $50,000 or say 20% of the nett assets of the fund.

Example

If the fund has $100,000 before the SMSF loan the requirement of the lender being 20% the self managed super fund would need to have $20,000 cash left after the purchase. So the SMSF would have $80,000 for funds to complete the purchase along with the SMSF loan.
Likewise, if the requirement of the lender was $50,000 then the SMSF would have $50,000 for funds to complete the purchase along with the SMSF loan.
With Commercial SMSF Loans some lenders are lenient with this requirement.

And What about SMSF loans to service outside the fund?
In some cases, lenders will require the SMSF Loans to service outside the fund i.e. the members to be able to afford the SMSF loan as if it was being purchased in the own names directly. With commercial properties, certain lenders will just use the rent and the ongoing contributions going into the fund to cover the SMSF loans repayment.

However, these types of SMSF loans tend to have lower LVR requirements, meaning the SMSF will need higher cash contributions to cover the deposit and funds to complete the purchase.

Also, some lenders are now requiring a minimum net asset balance for the self managed super fund to enter into a LRBA. This is based on the ATO earlier recommendations that self managed super fund have a minimum amount of $200,000 in cash or assets, this just a recommendation not a legal requirement. And now it is very hard to find that same or similar recommendation on the ATO website

We are always available…..
SMSF Loans Melbourne helps Property Investors and SMSF to finance their investment property purchases by working with your accountant or Financial Planner to get the best solution for your situation.
For a quick chat or to arrange an appointment with SMSF Loans Melbourne contact us here

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Self Managed Super Funds or SMSF Investment Strategy
Self managed super funds buying property

Self managed super funds buying property

Self managed super funds buying property

We all know….Australians have for a long time have had a love of owning their own property, in fact Australia has one of the highest home ownership in the world. So it make sense to take the next step and look at the options of a Self managed super funds buying property.

But Did you know?

You cannot live in a property that a SMSF owns and there are some other restrictions. However, when you look at the graph below you can see property values in Melbourne has doubled in the period from 2006 to 2016 it makes a compelling argument to consider property as a investment choice for your Self managed super fund.

Self managed super funds buying property

Tax Free

The property value increased over $400,000 for those ten years, that’s $40,000 per year equity increase. And if this was inside a SMSF and you sold the property after you retired that capital gain of $400,000.00 would be Tax free under the current taxation rules.

Not a bad little earner

So how can your Self managed super funds buying property?

Since 2007 the rules regarding a self managed super funds buying property have been relaxed enabling a self managed super fund i.e. SMSF to borrow funds to purchase a property, this can be either for a residential property or commercial property.

So it is a lot easier to now for a SMSF to buy property…. But how?

Depending on the funds available in your Self managed super fund most lenders will require a 20 to 30% deposit plus funds for stamp duties etc. plus the lender will require the fund to have cash left over to service its other commitments.

How much I hear you ask?

This depends on the lender some have a requirement of a % of net assets or a set amount.

As we said earlier you and fellow members of the self managed super fund or relatives can’t live in a property bought by a SMSF. However you can rent a commercial property that has been bought by your SMSF.

The other main difference regarding a self managed super funds buying property is the loan type is different as follows:
• When a Self managed super funds borrows funds to buy an investment property it is called a limited recourse borrowing arrangement or LRBA. This means the lender only has the ability to call on the assets directly related to the loans and not any other assets in the SMSF if there is a default on the loan.
• Most LRBA loans for self managed super funds buying property have a higher interest rate due to the “higher risk “and depending on the lender the SMSF will require a minimum deposit of 20%.
• There are a lot of lenders who do not provide lending for self managed super funds buying property, so there are limited options in the market.

The other things to consider

Most lenders like established properties with a comparable rental properties in the surrounding area and will not consider new properties for a SMSF loan

As the contract of sale, it needs to be a single contract purchase with a deposit payment and the remainder at settlement this rules out a land purchase and a construction of a property. ie. With land and house construction usually it consists of a land contact and a building contract.

Let us Help

SMSF Loans Melbourne supports you through the entire process and we work with your accountant, financial planner, solicitor and real estate agent to aid successful outcomes when the SMSF is borrowing to buy property.

If you have any questions regarding buying a property in your SMSF please contact SMSF Loans Melbourne for a free catch up or just a quick chat to review what your SMSF is doing regarding buying property and how we may help.

Contact SMSF Loans Melbourne here.

SMSF Loans Related Articles
SMSF Loans for Residential and Commercial Properties
Self Managed Super Funds or SMSF Investment Strategy