In September 2007 legislation changed enabling super funds and self managed super funds (SMSF) to borrow. 

With the ability to borrow, a self managed super fund could be the asset ownership structure of choice for your next property purchase.  Even for those with a balance as low as $130,000, with borrowings, you can purchase a property to the value of $500,000.  With geared property in your SMSF you can easily accumulate the traditionally accepted threshold of $500,000 (where a SMSF becomes more cost competitive than a public offer super fund).

When the Superannuation Industry (Supervision) Act 1993 (SISA) was amended in September 2007 to permit the use of borrowings, the changes were embodied in section 67 (4A).

 

What this means is a SMSF can fund the acquisition of an asset on the following conditions:

 

- Lenders rights against the trustee are only against the asset purchased (limited recourse loan);
- Asset is an asset of the SMSF and could otherwise legally acquire (in other words you can pay out the loan and the SMSF can own the asset);
- Asset is held in trust for the SMSF (the asset is held in a Property Holding Trust also known as a Bare Trust);
- Asset must not be prohibited (cannot acquire an existing asset from a member, unless business real property);
- SMSF acquires a beneficial interest in the asset from the outset; and
- SMSF has the right to acquire legal title on making one or more payments.

 

 

Benefits of gearing (what it means to you):

1. Investments of choice

2. Accelerate your superannuation asset base by up to 4 times its current value

3. Better asset protection than purchasing property outside of super

4. Low  tax rate of 15% or less on all income

5. Control of your investment, your asset is not sold to pay management fees

6. 0-10% capital gains tax on sale of the property

 

Despite the attractiveness of gearing to acquire property in super, it has been slow to be taken up, mostly due to some common misunderstandings:

 

 

 

Who can benefit from purchasing property in their super?

 

- Property investors

- Business owners that want to purchase their own premise.

- Business owners who currently own their premise can sell that property into their super fund

- First time property investors who don't have the equity or savings to purchase an investment property outside super. 

- SMSF can have up to 4 members, investors with combined superannuation balances and contributions can invest together

- Savvy SMSF Trustees who want to bolster their investments, have more control and chose what they invest in.

 

Will your next property purchase be a 'super' one?

 

With the ability to borrow, a self managed super fund could be the asset ownership structure of choice for your next property purchase. 

Option 1: 100% borrowings SMSF property purchase
$320,000 loan from the bank to SMSF (limited recourse loan)
$120,000 loan from the Members to SMSF

Option 2: 80% borrowings SMSF property purchase
$320,000 loan from the bank to SMSF (limited recourse loan)
$120,000 contribution from the SMSF

Option 3: 100% borrowings property purchase outside Super
$320,000 loan against new purchase
$120,000 loan from equity in another property

 

 

	Option 1	Option 2	Option 3
Purchase Price	400000	400000	400000
Costs	20000	20000	20000
Rent @ 375 p/w	20000	20000	20000
Property expenses @ 20%	4000	4000	4000
Interest expense @ 7.5%	31000	24000	31000
Contribution	15000	8000	15000
CGT on sale	40000	40000	96000

What do you need?

1) A Strategy on how you want to invest and what borrowings are available to you

2) Compliant Documentation

   - SMSF Trust that allows for borrowing
   - Corporate Trustee
   - Property Holding Trust

3) Lenders approval in principle
4) Purchase contract

 

What to do next?
Find out how this strategy can work for you: 

Call us today on 1300 520062

or Email Us here

 

Please Note: This does not constitute financial, property, insurance, securities or investment advice.   Your needs are unique and an investment strategy needs to implemented taking your personal needs and circumstance into consideration. As Buyers Agents we have clients that we have assisted to successfully purchase property through their superannuation, however we are not licensed to give financial advice and therefore refer this portion of the process to a licensed third party.