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
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.
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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