How Do I Use My Self Managed Super Fund To Buy Property?
What is a Self Managed Super Fund (SMSF)?
✅A trust for people to manage their own superannuation.
✅Your normal super is paid into this trust by your employer or business as per usual. You will manage the funds rather than an investment company.
✅In this way a persons SMSF is used to help plan for retirement and tax structure.
How does it work?
✅Typically the bank lends to the SMSF trustee.
✅The property is held 'on trust' using a security custodian.
✅The SMSF must have a 'beneficial interest' in the property - there must be something to gain for the SMSF to own the asset.
✅The SMSF acquires the legal title from the security custodian after making all the property repayments.
✅In the event of a repayment default, the lender can only claim against the asset in the SMSF, not all the assets in the fund (which is why major lenders don't do this kind of loan).
Servicing of a SMSF loan
✅Each lender has their own SMSF lender application criteria and there is typically no one-size-fits-all set of rules that apply here.
✅Most lenders will add a small margin to their normal residential interest rates for SMSF's; these margins vary between lenders. In some instances you may be offered standard rates if your SMSF scenario meets certain criteria.
✅There needs to be sufficient income in the trust to service the loan. The lender will look at the current income of the SMSF (trust) based on the previous 2 years tax returns. This income plus the proposed rental income from the property must be sufficient to service the debt.
✅Personal Guarantee: if your SMSF (trust) does not produce enough income to service the loan, some lenders will allow other members or beneficiaries of the SMSF to help with servicing once a personal guarantee is provided.
✅Speak to Mortgage Broker Revesby for a referral to a good SMSF financial advisor that can help you structure your funds.
What if the SMSF doesn't service the loan?
✅Some lenders will look at the current incomes of the trusts beneficiaries and assess based on their 'proposed' new super contributions. These contributions must be within the maximum concessional amounts allowed by the ATO, and done without causing hardship.
✅Lenders will probably not accept your super contributions if you are close to retirement age. In this instance the loan term will be reduced or the amount lowered until the rental income of the property can cover the repayments.
✅Banks won't usually accept income from shares or any of the current assets in your trust.
What kind of loans are available to my SMSF?
✅Commercial property: usually up to 75% of the purchase price to a SMSF.
✅SMSF investment loan: typically up to 70% of the purchase price. Some will go to 80% on a case-by-case basis.
✅Low Doc: much harder to get approved - although possible.
✅SMSF Construction finance: tricky as you cannot buy a vacant piece of land for your SMSF. Must buy the land first and then use your SMSF to build the house.
✅SMSF Bad Credit loan: 70% of a commercial property or 80% (at the higher end) for a residential property with bad credit.
When can't I use my SMSF to purchase a property?
✅You cannot sell a residential property that you or a related party own to your SMSF. You CAN do this with a commercial property.
✅No construction loans for a SMSF. You CAN fund any renovations with your SMSF.
✅Refinances on SMSF loans are much less available.
✅Owner occupier loans to your SMSF may not be possible. You CAN buy an owner occupied commercial premises for your business to operate.
Can I use funds in my managed super fund for my deposit?
✅Yes. Simply transfer the funds from your 'managed super fund' into your SMSF to form your deposit. This effectively means that you do not have to save for a deposit.
Benefits of using a mortgage broker for a SMSF loan
✅Most major banks do not lend to SMSF any longer. SMSF lending is a smaller market with recourse limited to the asset itself (not the other assets in the fund). It is for this reason most lenders ask for a personal guarantee from all the members of the fund. It's complex to assess and expensive to construct. For this reason the majors left the space leaving a bunch of smaller & sometimes unknown lenders to navigate.
✅There are large differences in interest rates and fees between the smaller lenders in this space. It pays to utilise the services of someone who can help you navigate these lenders.
✅Some lenders won't allow an offset account when lending to a SMSF. This is important if you have large sums of cash in your SMSF. Your mortgage broker can help guide you to the best lender for your needs.
✅A hard loan to get approved on your own (even for a mortgage broker).
Get in touch
#SMSF #homeloan #mortgagebrokerrevesby #mortgagebrokersydney #realestate #selfmanagedsuperfund
Comments
Post a Comment