What’s The Process For Self Managed Super Funds Buying Property?

What’s The Process For Self Managed Super Funds Buying Property?

Arguably the most common question or misconception in this industry is exactly how finance or borrowing to buy property in SMSF actually works.

One of the beauties of having a self-managed superannuation fund is the ability to leverage your super, by borrowing money from a lender, to be able to make more sizable investment purchases, such as Australian residential houses and land.

So What Does Borrowing To Buy Property In SMSF Mean?

Borrowing money through a self-managed superannuation fund for something like the purchase of a home is not traditionally structured like a loan for property investment.

The loan is instead far more similar in its structure to a commercial loan. Imagine you were going to buy a tractor from John Deer for your farm, or a ute from the Toyota dealership for your painting business. You would go in with your business’s credentials, ABN number, trading history and you would put down a small deposit of the value of the tractor or ute, then the seller would finance you the remainder of that purchase, with an agreed weekly or monthly repayment to be made over a pre-agreed period of time. 

The lender may be willing to borrow money from your SMSF for the sole and only purpose of buying the property that you have proposed. The lender (bank) will hold a security (mortgage) over that property and technically it is the bank that owns the property, not your super fund until the final loan repayment is made. Then the SMSF is discharged from the loan and becomes the owner of the investment/property moving forward.

There are many rules and regulations around what type, style, age and location of property you are able to get financed for through a self-managed superannuation fund. This has become increasingly difficult over the last 5 years and lending regulations have tightened and most of the big banks no longer offer a product in this space. 99% of SMSF lending is now written by 3 institutions; La Trobe Financial, St George Bank & Liberty.

SMSF borrowing is most similar in its structure to a secured business investment loan, it’s why the interest rates are significantly higher than traditional home borrowing. Home Loans in the modern day are anywhere from 2% to 3% depending on the circumstance. Whereas borrowing money through a self-managed superannuation fund is usually between 5.5% to 6% interest, due to being a loan offered to a corporation, not a human and is not asset-backed by any of the borrower‘s (your) personal assets e.g. Own Home, Cars, Boats etc.

The true beauty of being able to borrow through your SMSF, and the reason it has become one of the fastest-growing financial services sectors in this country, is because it has the potential to massively accelerate the growth of your super, allowing you to not only profit from the growth of the super funds you had to start with but also to make a profitable return from monies borrowed as well.

Please see an example below.

If you were to invest in a high growth, high yielding investment property, then you should expect to receive approximately a 5% – 5.5% rent yield PA combined with 6% – 6.5% capital growth PA, creating a 11-12% Gross Return PA.

Therefore if you started with $200,000 in super, your super would be growing by $20-25,000 each year. However if you bought a $500,000 house and took a $300,000 loan @ 5.5% interest rate then you would also be making another $15-20,000 a year growth off of the monies you have borrowed.

This example shows you a return of $35-45,000 in your first year of owning a property through your SMSF which is a 17.5% to 22.5% growth on the original $200,000 you started with. These numbers would likely be significantly higher than what is being achieved in your current retail structure at present.

For more information, contact the team at Corbwood & Associates today.

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Buying Residential Property With SMSF (Self Managed Super Funds)

Buying Residential Property With SMSF (Self Managed Super Funds)

Investing in property is a goal many of us hope to achieve. However, sourcing funds for an investment property can be a challenge. One option available is to consider buying a property with super

Property investing through a self-managed super fund (SMSF) has become increasingly popular in recent years. However, before you pursue investing through your SMSF, it’s important you understand what is involved. 

Buying A SMSF Residential Property – What Criteria Do I Need To Meet?

How you invest your super is still tightly regulated by three key government agencies. Namely:

  • The Australian Taxation Office (ATO).
  • Australian Securities & Investments Commission (ASIC).
  • Australian Prudential Regulation Authority (APRA).

Together, these agencies direct how and when you can utilise your super to invest. The ATO monitors and carries out audits on SMSFs regularly to ensure all arrangements are compliant. 

Before these authorities approve buying a property with super, they will check to see you meet the basic criteria:

  • Your fund needs to have a minimum balance to qualify.
  • Evidence of contributions of at least $15,000 per annum. 

Additionally, when buying a residential property with SMSF you may not: 

  • Buy a property in which you intend to live.
  • Buy a property you intend to develop and resell. This is seen as a one-off profit-making exercise rather than proper planning for your retirement. 
  • Acquire property through a friend or associate. 
  • Rent the investment to an associate or family member.   
  • Buy a holiday home that you will use personally or allow associates to use. 

Are There Any Risks Associated With Buying Property In An SMSF?

As with any investment strategy, there are risks involved. Buying property through a self-managed super fund is no different. 

As per ASIC’S website, SMSF property risks include:

  • Higher costsSMSF property loans tend to be more costly than other property loans.
  • Cash flow issues – Loan repayments must come from your SMSF. Your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
  • Difficulties cancelling – If your SMSF property loan documents and contract aren’t set up correctly, you can’t unwind the arrangement. You may have to sell the property, potentially causing substantial losses to the SMSF.
  • Possible tax losses – You can’t offset tax losses from the property against your taxable income outside the fund.

When buying a property with super, there will also be associated fees. These include legal costs, stamp duty, property management expenses and bank fees when pursuing investment through an SMSF. 

Can I Live In My SMSF Property When I Retire?

If you would like to live in your SMSF property when you retire, you will need to have it transferred out of the ownership of your SMSF and into your own name. If this is something you will eventually be interested in doing, we and our associates will be able to walk you through that process.

Before buying a property with super, you should seek professional advice. At Corbwood and Associates, our team is made up of fully qualified and licensed professionals who understand your needs. 

We are passionate about providing quality advisory services for:

  • Property investment via self-managed super funds. Both residential and commercial. 
  • Refinancing and first-time home loans.
  • Property investment advice and wealth creation strategies.   

Contact us to arrange a consultation to see how we can help secure your financial future.

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Why invest in property

Why invest in property

You’ll often hear that investing is important, but there are so many things to invest in, so why property?

A lot of people will argue that real estate investing is neither easy nor a quick process. It takes time to understand the market and develop knowledge within the industry and also it takes time to get to the point of the property settlement. 

Sounds complicated?

You are not alone – that’s the very reason some people ignore property and choose to simply park their money in shares or managed funds.

Property investing in Australia is a long-term investment that has shown to grow over time and has made many people financially independent. When it comes to starting the investment property process it’s important to utilise a professional that can guide you through the process that will not only make it easier and more streamlined for yourself but will also ensure you are finding the right property in terms of location, growth, occupancy rate and rental yield. 

Here are some benefits to investing in property: 

Anyone can invest in property

Investing in property isn’t just for the wealthy, it’s for anyone that is looking to get ahead in life.

The Security of property

Property has never gone broke. Yes, read that again. Investing in property is low risk, even allowing for the ups and downs of real estate values that we hear about, the underlying trend of property prices in the major capital city residential markets has been steady growth. Banks have always considered real estate as excellent security. That’s why they are happy to lend you up to 95% because property values have never fallen in the long term.

Capital Growth

Capital growth is an increase in the value of an asset or investment over time. While there is no guarantee your property will gain in value over any given period, and capital growth largely depends on where and what you buy, historically real estate experiences steady growth over the long term. When it comes to investing in property it’s important to talk to an expert because they will be able to assist you in choosing the right investment based on location and the capital growth in the area.

You are in control of your investment

The owner of the property is in complete control and can make all the decisions. You can control who tenants the property, the rent amount and potential for more growth. For example, if you are looking for an increase in returns then you can look at renovating the property to add value and make it more desirable which results in a potential for higher rent.

Get started in property investment with Corbwood

Contact us today to arrange a time for a consultation to discuss your options with a property investment with superannuation and secure your financial future now.

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Why invest in property

Why invest in property

You'll often hear that investing is important, but there are so many things to invest in, so why property? A lot of...

Choosing A New Home Loan

Choosing A New Home Loan

Over the past year or so there has been a large shift in financial services and banking in Australia. Many lenders had to readjust how they lend to people and the products they offer after the Royal Commission.

The landscape began to change with more competitive loans and new lenders offering exceptionally low rates on home mortgages, some significantly undercutting the big four banks.

Many people began pausing to review their current mortgage and look at new options available and ways to save more money and own their home sooner. This made all lenders readjust their offers to attract new customers as the number one choice.

When choosing new home loans in Australia, there are a number of things to consider. In this post, we look at these options and how to start.

Interest Rate

This is the most important element when reconsidering your mortgage. In simple terms, the higher the interest rate, the more you will pay, the lower, the less you will pay.

Ideally, you’re paying principle and interest so you are reducing the amount of the loan (principle) which in turn will reduce the amount of interest you will pay.

Currently, there are a number of lenders offering very low rates at under three (3) percent which is significantly different to past years. Look at the options to see if the reduced rate is just for the first year and what requirements you need to meet with the lending to value ratio (LVR).

The rate may differ if it is over the set percentage by the lender.

Setup Fees

Some lenders will charge a range of setup fees for a new loan. It’s important to get all the information up front so you can evaluate the offer. This may include an application fee and other related charges. You can also discuss these with the lender to see if they will allow you to avoid some fees.

Early Exit Fees

Some lenders will charge an early exit if you cancel a loan. Check your agreement to see if this is the case and how much it is. If it’s modest, it may still be worth changing to a better loan.

Using a Broker

You’re probably aware that there is an option to work with a Broker to find the best possible mortgage for your situation.

Brokers are typically very knowledgeable and know about the best offers currently available. This can save you time in trying to find the best loan and go through the application process. Brokers can help streamline the application process to improve your chances of a successful outcome.

It is important to find a Broker you can trust. Someone who will allow you to ask questions and provide you with a choice of alternatives. Some Brokers however don’t do this and only provide choices that benefit them and their commission.

We can help you with this process in the most transparent and honest manner. Our team includes everyone you will need to process the loan including accountants, lawyers, conveyancers and financial advisors all under one roof.

To arrange a consultation to review your current loan and choosing a new SMSF property loan, contact us today.

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What Is A Self Managed Super Fund?

What Is A Self Managed Super Fund?

You might be wondering, what is a self managed super fund?

A self managed super fund is an alternative investment strategy for your retirement. This type of fund is managed and run by the trustees, yourself instead of a super fund.

It allows you to choose how your money is invested in property, shares and other methods. You can in fact borrow money from your superannuation fund to purchase an investment property that can be rented out before you retire.

A self managed fund does require more management and compliance with taxes and legal elements, so it’s recommended that you speak with a financial advisor to get help in setting up your fund.

You will need to carefully consider what level of income you will want and require when you retire and choose investments that will provide this to you.

You can have up to four (4) trustees managing the fund. All four are responsible for the funds management, taxation obligations and legal aspects.

SMSF australia

 What are the benefits of an SMSF?

There are a number of benefits in having a SMSF and how you choose to invest for the future.

The following will detail considerations as part of your SMSF:

Control Of The Investments
As mentioned, you can control how and where your money is invested. There is the option to invest in property as well as shares and fixed interest portfolios. You have the option to borrow from the fund to invest in these things.

Flexibility and Speed To Change
As you have control of the fund, you can quickly sell or modify your investments. If the share market is showing signs of change, a loss, you can sell and move those funds before a loss.

Ability to Pool Your Super
You can collectively pool your super with other trustees. This may be your husband or wife or anyone else you have as a trustee. This can significantly increase the pool of funds you have.

Estate and Insurance Planning
If the deed allows it, you can make binding death benefit nominations that will not expire or need to be updated. You can then control how the benefits are paid out and to whom.

Tax Management
The current tax rate on earnings within a superannuation fund is 15%, however, if the income is produced via assets supporting the income stream such as a pension payment, there will be no tax payable on that income.

Purchasing Property With SMSF
As previously mentioned, you have the option to borrow against the fund to buy and invest in property. This can be residential and or commercial property that is leased out to others who are unrelated to you.

Property is a good long term investment strategy that has less risk than shares and cash. We can assist you with exploring the option in property as part of your SMSF.

Be Organised
As noted, as a trustee, you will be responsible for managing the fund and all related aspects of the SMSF. We recommend that you seek advice across taxation, compliance and related legal elements.

Contact us today to buy property with SMSF.

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What to do if you lost super during COVID

What to do if you lost super during COVID

Have you lost super during COVID? You may very well be concerned that your super fund took a loss during this time. Some people have lost tens of thousands of dollars during the height of the Covid pandemic. You then ask, what can I do to build my retirement fund back up and protect the fund should something like this happen again?

In addition, you may have lost your job and income as a result of the pressures on businesses here in Australia. This of course puts significant pressure on a person to get by with the costs of living and housing.

The Australian Government allowed people to access their Super early to access up to $10,000 in the financial year to get through the difficult times.

 

Depending on how this was spent, this may invoke concern with some people on will you be able to make it up again and how long will that take?

The good news is, depending on your super fund, this money can be regained. We’ve heard from some clients who have already made a large portion of their money back with their funds with the recent upturn in the financial markets and good fund management by their providers.

It’s certainly a good time to speak with your Financial Planner or find one now to ensure your retirement investment is protected and returning what you need.

property investing australia

Alternative Superannuation Investment

An alternative to the traditional superannuation fund is a self-managed super fund. Transition-to-retirement rules allow you to access your super while you’re still working up to your planned retirement age.

You can then make an alternative investment in property by purchasing a property, residential or commercial as part of your long term investment strategy. This is on the basis that the property, the home will be rented to tenants over time.

This can help avoid the high-risk strategy of investments in shares and cash and losses. There are also tax benefits of following this type of investment to consider as well. Rental funds can be used as a pension payment during the ages of 55-60 years as a supplement income.

This strategy can help create long term assets that you can comfortably leverage in your retirement with certainty and ease.

We can assist you in setting up a self-managed super fund and discuss the options and timing toward investing in property as part of your fund.

What is a self-managed super fund – SMSF

A self-managed super fund is a private alternative super fund that is self-managed by its benefactors or trustees.

It is run in a way you prefer in terms of investments, complying with super and tax laws. It’s a long term investment strategy for your retirement plans.

It’s recommended to obtain professional financial advice in setting up this type of fund and its ongoing management. This type of fund can help diversify your investment portfolio.

Get Help Today

If you lost super during COVID contact us today to arrange a consultation with our expert team to get started on your SMSF journey.

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