Thinking of Borrowing Money in Your SMSF to Buy a Property?
Have a Game Plan and Assemble a Good Team
Having a self managed super fund does not mean that you have to handle all aspects of its management yourself. If you’re thinking of borrowing money in your SMSF to buy a property, there are many things to consider and you need to make sure you get it right. Getting it wrong can have harsh consequences when a superannuation fund is involved.
Finding the right professionals can help to ensure that everything happens the way it should. Here is a good team to consider:
Financial Advisor – Seeking financial advice that is particular to your circumstances is a good first step in deciding whether or not this investment is suitable. Before settling on a loan, nearly all of the SMSF lenders will require you to provide a Financial Advice Certificate that has been signed by a licensed financial advisor. Many trustees get caught out by this requirement and have to find someone at very short notice. Getting financial advice before the process commences not only assists with obtaining this certificate, but also helps to ensure that the decision is made with as much knowledge as possible.
Administrator/Accountant – Green Frog Super can help you to establish the correct structure for the purchase and advise you of the taxation and compliance issues to be aware of. If you already have an SMSF your deed may also need to be upgraded so that it adequately caters for borrowing within the fund. If your existing fund has individual trustees there are a number of reasons why you may need to consider changing to a corporate trustee before a property is purchased. Green Frog Super will gladly assist you with these issues.
SMSF Lending Broker – Utilising the services of a loan broker can help to reduce the amount of time you need to spend researching the various loans as well as submitting and following up the loan application. The loan process is longer and more involved with an SMSF loan so getting pre-approval before you find a property can potentially put you in a better negotiating position as well as help to avoid missing critical contract dates associated with the finance. The lending broker will be able to give some guidance about the likely amount of time needed for finance approval and settlement which you may want to consider before completing that section of the purchase contract.
Solicitor – As with any property purchase, the assistance of a solicitor and/or conveyancer is important to make sure that your interests are protected. This is especially important with an SMSF property purchase when lending is involved. Not only does the contract need to be entered into by the correct entity, but the timing of the signing of the property contract and the bare trust document is important for future stamp duty purposes. The rules vary between the states and is something that you’ll want to get right so that stamp duty does not apply at a later date when the property is transferred from the bare trust’s trustee to the super fund‘s trustee. Some lenders will also require a Legal Advice Certificate to be signed which demonstrates that you have been made aware of the terms and consequences of the loan especially in relation to the personal guarantees that you will most likely be asked to make.
For some general information that may be of assistance when deciding whether borrowing to buy property in an SMSF is suitable, the following links may be useful:
If you do decide that borrowing to buy property in an SMSF is suitable for you then having experienced professionals assist with the process will help to make the transaction as seamless as possible.
Disclaimer: This information in general in nature and does not constitute financial advice. In providing this information no recommendations are made as to whether the acquisition of an investment under a limited recourse borrowing arrangement is or is not a suitable investment for any particular superannuation fund. We strongly recommend that trustees or potential trustees of super funds should obtain independent legal and financial advice that considers your personal circumstances before making any investment decisions related to this information.
