Superannuation Fund Loans

Superannuation Fund Loans

Superannuation property investment is now available in Australia. Self Managed Super Funds (SMSF) often want to gear their real estate investments in order to diversify risk and increase the yield on their investment, but many funds do not have sufficient money to purchase real estate outright. The Superannuation Industry Supervision Act (SIS ACT) was amended in September 2007 to allow super funds to borrow and charge their assets so long as a special structure is used

What are the Features of the Self Managed Super Fund (SMSF) Leveraged Property Investment?

You can now choose any kind of property including residential, commercial, retail, and holiday units for a property leveraged investment. Your SMSF can purchase real estate let for business purposes from a member or a related entity (ie: this does not breach the “in house asset rule under the SIS Act). Investments in property other than “business real property are permitted provided the purchase is from an arms-length vendor.

debt instalment trust - borrowing at super fund level

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* Picture supplied by The Argyle Partnership, Lawyers

How SMSF Purchases a Property

The SMSF chooses the property it wishes to invest in, in the ordinary way. Residential property must be purchased from an arm’s length vendor. Non residential property can be purchased for full value from related parties so long as the property is let for business purposes. From there:

• The SMSF obtains a loan approval.
• The SMSF’s own lawyer / conveyancer acts on the purchase in the ordinary way. The purchase MUST be in the name of the Property Trustee.
• The SMSF pays the deposit, the balance purchase money (less the amount borrowed), the legal costs, and stamp duty in the ordinary way.
• On completion of the purchase the Property Trustee mortgages the property to the lender.
• SMSF then manages the asset in the same way as you would with any other real estate investment.

How the SMSF Leveraged Property Investment is Structured

• The legal owner of the real estate will be the Property Trustee.
• The beneficial owner of the real estate will be the SMSF.
• The lender has no recourse to the other assets of the SMSF, providing the SMSF with absolute protection for its other assets.
• The loans are personally guaranteed by the member/s of the SMSF (subject to credit approval).
• SMSFs can deal with the property however and whenever they like, in the same way as investors can deal with “normal investment properties (eg: lease, renovate, repair, or sell), (subject to the terms of the relevant loan and mortgage).
• All rents are paid direct to the SMSF.
• Loan repayments are made in the ordinary way from the SMSF.
• The SMSF can pay out or reduce the mortgage at any time (subject to the terms of the relevant loan).
• When the mortgage is paid out in full, title to the property can be transferred to the SMSF or the Property Trustee can continue as registered proprietor.

Rules Governing SMSF Leveraged Property Investment

There are a number of rules governing SMSF Leveraged Property Investment which you do need to understand. While they may appear complex, properly educated professionals involved in SMSF Leveraged Property Investment transactions can readily help you.

More Information From an SMSF Leveraged Investment Accredited Mortgage Broker

If you would like to talk confidentially with an accredited SMSF Leveraged Investment Accredited mortgage broker about your options, email us the form below or call at any time on 13 XINC (13 9462) or direct on +61 2 90188417 and we will return your call within 2 business hours. Accredited brokers also offer the normal range of home and commercial loans. They have additionally undergone training to gain SMSF Leveraged Investment Accredited Mortgage accreditation and have the professional infrastructure to assist you.

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The Process to Acquire SMSF Leveraged Property Investment

There are now a number of lenders in Australia who offer products for SMSF Leveraged Property Investments, with different risk profiles – interest rates, LVRs on residential or commercial securities, loan terms – length and amounts. Talk to your SMSF Leveraged Investment Accredited mortgage broker about your options. Here is an outline of the steps you will take, much of which can occur simultaneously:

1. Establish or review SMSF
2. Establish the Property Trust Deed
3. Instructions to Solicitors/Conveyancers
4. Obtain loan approval
5. Contracts exchanged
6. Loan documents issued
7. Settlement

SMSF Investment Customer Case Study

Sandra is a 47 year old partner in a firm of architects who was looking at purchasing a unit for $500,000 as an investment. Her financial planner recommended she weigh up the alternative strategies of a “normal negatively-geared investment or setting up a Self Managed Super Fund (SMSF) to purchase the investment. Sandra was astonished to find that, by repaying her loan using deductible super contributions, the total projected advantage to her by age 60 would amount to approximately $150,000, including CGT savings.

Assumptions: Loan of $400,000 repaid by salary sacrifice of $2500 pm; Marginal income tax rate 46.5%; Rent received = $600 pw increasing by 3% pa; Property value increases by 5% pa; Loan interest rates average 9% pa over term.

Disclaimer

This information is provided as a general guide only and is not advice or a recommendation to enter into any transaction, and is subject to the final terms as set out in final documentation from your lender. X Inc makes no representations as to, and accepts no responsibility or liability for, the accuracy or completeness of the information. X Inc� and its affiliates do not purport to be, legal, tax, accounting, financial or regulatory advisors in any jurisdiction. X Inc acts neither as an adviser to, nor owes any fiduciary duty to any recipient of this information.

Prior to entering into any proposed transaction, you should independently evaluate the risks of such a transaction and the your ability to assume such risks from your adviser.