What is a self-managed super fund loan?
SMSF loans, also known as Limited Recourse Borrowing Arrangements, allow SMSF trustees to borrow money to purchase an investment property that they may not be able to afford to buy through their SMSF outright.
After the purchase, the property is placed in a custodian trust until the debt is paid off. The title is then transferred to the SMSF. SMSF members have a beneficial interest in the property for the period of the loan. Any earnings are reinvested in the SMSF to assist pay off the debt or increase the fund’s value.
What is a self-managed super fund loan application?
An SMSF loan application is the document you will need to complete to get your loan approved. As part of the process, each lender may require different documentation, but most will want copies of the SMSF trust deed, the custodian trust deed and the contract of sale.
You will also need to show proof of adequate personal income and you may need to compile SMSF bank statements, tax returns, audit certifications and rental estimates. This information helps the lender to ensure that everything is in order and that you can afford to make the necessary loan repayments.
How much can I get from an SMSF loan?
The amount you can borrow in an SMSF loan will depend on your financial situation as well as your lender and their policies. Some specialty lenders offer SMSF loans from $100,000 ranging up to $4,000,000.
Some SMSF lenders may also require you to keep a certain percentage of liquid cash. Depending on your lender, there is a possibility that they will agree to waive this if the initial deposit is large enough or if the rental income covers the loan repayments.
What are the SMSF loan requirements?
Most SMSF loans have four main requirements:
1. The property must be for the sole purpose of providing retirement benefits or death benefits to SMSF beneficiaries
2. If residential, the property must not be acquired from a member of the SMSF or any related party of a member
3. If residential, the property must not be lived in or rented by a member of the SMSF or any related party of a member
4. The property must be a single acquirable asset
If you are purchasing a commercial property it may be bought from or leased by SMSF members. This must be done at fair market value and the property must only be used for business purposes.
Are there any SMSF loan risks or downsides?
Under limited recourse property loans, a lender cannot recoup losses from any other assets held in the SMSF. They can only make a claim against the property, which is held in a custodian trust.
While this provides borrowers with some level of protection, it is important to do your research before diving in. A licensed financial adviser can help you to ensure you understand your obligations and assess whether an SMSF loan aligns with your long-term investment strategy.
Can I refinance with an SMSF loan?
While it’s possible to refinance an existing SMSF loan, few lenders provide SMSF loans for this purpose. As a specialist lender, Liberty has the freedom and capacity to provide loans that traditional banks cannot accommodate – including SMSF loan refinances.
Do I need an SMSF loan broker?
If you have an SMSF and are considering taking out a mortgage to buy an investment property, your first step should be to seek advice from a professional.
If you decide to go ahead, a mortgage broker can help you find the right SMSF loan for your needs and help explore what other lending options may be available to you. And, if you’re new to SMSF lending, a broker can help to simplify the process and answer any questions that may pop up along the way.
For free consultation email us at contact@ozbroker.com.au or call 0426667696
