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SMSF Lending

SMSF property Finance provides self-managed super funds the ability to borrow to purchase a residential or commercial investment property, allowing…

SMSF Case Study

John and Jane Smith have an SMSF with $200,000 in cash and $50,000 in other assets. They would like to buy an investment property within their SMSF. The property, however, is worth $400,000 which means the SMSF doesn’t have enough money to cover the full cost of the purchase. In this instance, the SMSF Trustees can apply for an SMSF Property Loan.

How does it work

The Smiths’ seek independent financial and legal advice to ensure it is appropriate for their SMSF to borrow money and purchase an investment property.

Once they have received this advice they begin establishing the trust structures required for the loan, ensuring they comply with the relevant Superannuation laws. The loan would then need to be taken out by the SMSF Trustee.

The Smiths’ will also need to set up a separate holding trust called a Bare Trust, which will be the legal owner of the property.

To purchase the property, the SMSF can use the $200,000 it has available in cash and borrow the remaining funds plus other associated costs, using the investment property as security for the loan.

The Bare Trust becomes the legal owner of the property, while the SMSF is the beneficial owner and receives the rental income. The rent (and/or other income from the SMSF such as investment income and super contributions) can be used by the SMSF Trustee to make the loan repayments.

It’s important to note that the loan is a limited recourse loan. In the event of a default, the Lender has recourse to the property security and any additional security provided by the Guarantors. The Lender will not have recourse to any other assets held in the Smiths’ SMSF.

Once the loan is repaid the legal ownership of the property is transferred to the Smiths’ SMSF via the SMSF Trustee.

This case study provided including all names and details is a fictitious example only and is provided for illustrative purposes to demonstrate the basic outline of how a SMSF Property Loan can be structured; it should not be relied upon for any reason and provides no determination of the potential tax implications of a SMSF Property Loan. We recommend your clients obtain independent financial, legal and taxation advice before making any financial investment decision. For more information, please refer to one of our Credit Advisers.

Important: SMSF Trustees considering a SMSF Property Loan must seek independent financial and legal advice.

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SMSF Loan Application Process

This is a guide only.

  • Initial enquiry is taken and quotes are obtained to compare SMSF loans (approx. 1 week)
  • Lender recommendations are made to client to help them select their preferred lender
  • Application forms are provided to the client (approx. 2 days)
  • Application forms are signed and returned by client
  • All supporting documents are supplied by client, accountant and solicitor.  This includes the Bare/Property trust deed and SMSF trust deed.
  • Loan application is submitted to the lender (approx. 2 days once all forms & supporting documents are received)
  • Loan approved by lender (approx. 2 weeks for the decision to be reached).  Note: This usually includes a review of the bare trust deed. If alterations are needed to the trust deed, the approval time will increase
  • Documents prepared by Financier and their solicitor and sent to client (approx. 2 weeks)
  • Client signs documents and arranges appointments with Financial Planners, Accountants or solicitors to sign Financial advice or Legal advice certificates where they have been requested by the lender.
  • Client returns documents to lender.
  • Lender certifies that all signed documents are correct and allows settlement to be booked (approx. 1 week)
  • Loan settles

Please note the overall loan set up usually takes 6 – 8 weeks.  In extreme cases or where supporting documents such as trust deeds are not available when requested, the process can take longer.

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SMSF Finance Factsheet

  1. Residential or commercial security properties are acceptable
  2. Available for investment property purchases
  3. Available for refinance of existing SMSF investment property loans
  4. SMSF loan increases are not available after settlement.
  5. Minimum size for security property is either 40 or 50 square meters, depending on the lender
  6. Off the plan purchases (or properties less than 12 months old) can be financed with specific lenders only.
  7. Accountants may need to provide proposed contributions letter for the ongoing financial year with some lenders
  8. Customers must obtain financial advice from their own planner or accountant with most lenders
  9. Customers must obtain their own legal advice at their own cost
  10. Upon payment of the loan in full, the mortgage is discharged and the legal ownership of the property is transferred from the trustee of the bare trust to the trustee of the SMSF
  11. In some cases the loan cannot be approved until the SMSF trust deed and Bare/property trust deed have been vetted by panel solicitors.
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SMSF Required Document Checklist

 

The following list is a guide only.

  • Completed application form which we will provide.
  • Contract of Sale (where applicable).
  • Signed Undertaking to Pay Solicitors Costs (where applicable).
  • A Statement of Advice or Written Advice from an RG146 accredited Financial Planner/Accountant, certifying that the appropriate strategy of the SMSF is to invest in the purchase of the property (where applicable).
  • Superannuation Fund Trust Deed.
  • Property Trust Deed.
  • Security Deed for the Bare Trust and Trustee.
  • Last 2 years financial statements from the Self-Managed Super Fund.
  • Last 2 years Financials statements/tax returns for all directors/beneficiaries of the Self-Managed Super Fund.
  • Real Estate Agents Rental Estimate or copy of the Lease Agreement.
  • Valuation (if one has been done, please note the financier will still need to organise their own valuation prior to settlement).
  • Agreement between Super and Property Trusts (as per policy).
  • Super fund statements showing current balance in the super fund. If deposit has been paid on the property purchased, super fund statement showing deposit paid.

 

Documents Required- Prior to Settlement

  • Valuation (organized by Financier).
  • All documents provided by Bank need to be appropriately signed and returned.
  • Transfer of Land.
  • Signed Nomination Form.
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