Self Managed Super Fund Loans

February 20th, 2011 11 Comments
Posted by

SMSF investorDo you have approximately $150,000 in your Superannuation? If you do, you may be eligible for a Self-managed superannuation fund (SMSF) loan to purchase real estate with your Super!

A vast number of major mortgage brokers and bank managers do not understand SMSF Loans as they are complex and they do not deal with them on a daily basis. This means that errors can be made, and loans declined purely because of their lack of understanding; as such it is strongly advised that you seek expert advice when considering Self Managed Super Fund borrowing.

There are also significant differences between policy and pricing between different banks, so speaking to a specialist mortgage broker such as The Home Loan Experts will ease the confusion that you would face dealing with the different financial institutions directly. You can find out more about their services on their Self Managed Super Fund Loan information page.

What are the benefits to borrowing in your fund?

Since the Superannuation Industry Supervision Act 1993 (SIS ACT) was amended in September of 2007, Funds now have the ability to borrow for Property Investments. This allows DIY Super Funds to take advantage of the same benefits as regular property investors.

Below are some of the benefits available to SMSF loans: (Please note: SMSF loans are also commonly referred to as Warrant Trust Loans, Instalment Warrants or SMSF Trust Loans.)

  • Reduces tax rate on rental income to 15%
  • Tax advantages on sale of investment property
  • Super Funds are able to purchase property worth more than it’s available funds through the benefit of gearing
  • You can use income from the security to help pay off the loan
  • Extensive tax deductions can be claimed by the Super Fund
  • Funds receive all income and capital growth, even if the property has not been paid off as yet
  • Superannuation assets are secure, as the lender does not have recourse to the SMSF’s other assets in the event of default

How do I purchase a property with my SMSF?

Self-managed Superannuation Funds can choose any type of property as investment; these investment properties include Commercial, Residential, Holiday Units and Retail. However, you must ensure that the property complies with the SIS ACT, the SMSF’s overall investment strategy (Superannuation funds must have a written investment strategy in place), and that the Fund has sufficient equity to complete the purchase.

Here are some basic guidelines as to how a SMSF purchases a property: (Please Note: The SMSF must purchase property from an unrelated party. Purchases must be at arm’s length.)

  • Establish your SMSF – The Trust Deed establishing the fund must have the power to Purchase Real Estate, Borrow Money, and Mortgage Property to secure payment of that borrowing
  • Obtain a loan approval – it is recommended to obtain a Pre-Approval on your Superannuation Fund before paying your deposit
  • Establish the property Trust Deed – this is something that your accountant or financial adviser will need to create. It is also important that the SMSF Trustee itself is not the Property Trustee, nor are the individual member of the SMSF are to act as Property Trustee – as this will breach the regulations of the SIS ACT
  • Exchange of Contract – deposit to be paid from Superannuation Fund
  • Formal Approval – Once Valuation on security is completed the lender will issue a Formal Approval
  • Loan Documents Issued – The lender will have their solicitor prepare loan documents and issue to you
  • Settlement – On completion of the purchase the Property Trustee mortgages the property to the lender

How is the loan structured?

The property itself is owned by a security trustee. You can click on the below picture for a detailed flowchart of how the mortgage & ownership of the property will be setup.

SMSF Trust Structure

What are the features of a Super Fund Loan?

  • Members of the SMSF are unable to reside in the investment residential property – however they can do so after retirement, providing it is transferred from the SMSF before hand
  • The lender has no recourse to the other assets of the Super Fund, providing the SMSF with absolute protection for its other assets
  • The Super Fund receives the income from the investment property
  • The legal owner of the real estate will be the Property Trustee
  • The beneficial owner of the real estate is the Super Fund
  • The Fund can make any adjustments to the property as it sees fit (e.g. Lease, renovate, repair, or sell) providing this is in conjunction with the loan terms
  • The SMSF has the ability to reduce or pay out the loan at any time (subject to the terms and conditions of the lender and loan)
  • After the loan is repaid to the lender the legal ownership of the security will be transferred to the Super Fund – repayments of the loan are made from the SMSF

Compare Lenders

Below is a quick comparison of the policies used by some the major lenders we deal with for super fund loans:

Lender 1:

  • Repayments: Principal & Interest
  • Loan Term: 30 years (residential), 15 years (commercial)
  • Maximum loan size: $4,000,000
  • Maximum LVR: 80% (residential), 65% (commercial)
  • Security: Residential or commercial

Lender 2:

  • Repayments: Principal & Interest
  • Loan Term: 25 years (residential), 15 years (commercial / rural)
  • Maximum loan size: $5,000,000
  • Maximum LVR: 80% (residential), 60% (commercial), 50% (rural)
  • Security: Residential, commercial or rural

Lender 3:

  • Repayments: Principal & Interest (fixed rates available)
  • Loan Term: 30 years (residential)
  • Maximum loan size: $500,000
  • Maximum LVR: 80% (residential)
  • Security: Residential

Seeking advice – how important is it really?

There are number of rules and regulations regarding establishing a Self-Managed Superannuation Fund and planning for your retirement.

As such it is highly recommended that you seek professional advice by selecting a qualified accountant, and a specialist mortgage broker. You can find out more about borrowing in your super fund the Home Loan Experts SMSF Trust Loan page.

It goes without saying that you should obtain professional tax and legal advice before establishing your own Super Fund, purchasing a property in a fund or applying for a mortgage with your fund.

11 Comments

  1. Carson Mensalvas says:

    good writing so far …Bookmarked.

  2. Truly no matter if someone doesn’t know afterward its up to other people that they will assist, so here it takes place.

  3. Izzos coupon says:

    Hey exceptional blog! Does running a blog such as this take
    a lot of work? I have very little knowledge of programming
    but I had been hoping to start my own blog in the near future.
    Anyway, if you have any suggestions or techniques for new blog owners please share.
    I understand this is off subject but I just had to ask.
    Thanks a lot!

  4. Hello to all :) I can’t fully grasp the
    best way to add up your website in my rss subscriber.

  5. Tamara says:

    Most of the blogs is not the place, but I’d like to say that this post truly forced me to not be so! a fantastic location.

  6. I simply couldn’t depart your web site prior to suggesting that I extremely loved the standard info a person provide to your visitors? Is going to be again regularly in order to investigate cross-check new posts

  7. Excellent way of describing, and nice piece of writing to take facts
    concerning my presentation subject matter, which i am
    going to deliver in school.

  8. I saw the diary as Yahoo and read a handful of posts. prestigious
    job! I just twittered about the weblog

  9. Kayleigh says:

    Hi! This post couldn’t be written any better! Reading this post reminds me of my good old room mate! He always kept chatting about this. I will forward this write-up to him. Fairly certain he will have a good read. Many thanks for sharing!

  10. qbd bookshop says:

    Appreciating the time and effort you put into your website and detailed information you provide.
    It’s awesome to come across a blog every once in a while that isn’t the same
    out of date rehashed information. Great read! I’ve bookmarked your site and I’m including your RSS feeds to
    my Google account.

  11. free coupons says:

    I’m really loving the theme/design of your site. Do you ever run into any web browser compatibility problems? A few of my blog readers have complained about my site not working correctly in Explorer but looks great in Safari. Do you have any ideas to help fix this issue?

Leave a Reply