All Topics / General Property / SMSF and borrowing for residential property

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  • Profile photo of bjsaustbjsaust
    Join Date: 2009
    Post Count: 141

    As well as looking at investing/developing outside of super, I'm looking at setting up an SMSF and borrowing to invest through it. Basically use it for buy and hold without anything beyond basic reno stuff maybe. Had an initial meeting with an accountant the other day and he called in their financial advisor to have a quick chat, and when I mentioned looking at borrowing to buy residential property through a SMSF they both frowned and started muttering about business real property, and adjusting expectations and such. I'm no expert, but the only restriction I've seen regarding needing to buy business real property was in regards to in house assets, and since I'm planning to buy and rent to strangers that wouldnt apply.

    Anyway, can someone confirm for me the rules regarding this?

    Profile photo of toni89toni89
    Join Date: 2004
    Post Count: 125

    Check out October Money magazine. It has all the relevant information regarding this exact subject. I am looking at the same thing. Only difference is we currently own the property and will sell it to our SMSF. I have yet to check it out further but i believe this can be done.

    Profile photo of Richard TaylorRichard Taylor
    Join Date: 2003
    Post Count: 12,024


    Yes you are correct as long as there is no relationship between you and the tenant (cant be a Trustee of the SMSF or related party) then you should be fine.

    In saying this you have to consider the following:

    1) A SMSF cannot borrow in its own right so it is done through an Instalment Warrant by utilising a Bare Trust. A Corporate Trustee is required. As such each property you purchase and finance you will need a separate Trust and Pty Ltd Company so the costs of establishment start to mount.

    In addition on average most lenders will charge upto a couple of thousand dollars for their own legal fees to assess the Trust Deed.

    2) Limited to circa 70% of purchase and in most cases interest rates are higher as the loan is considered Commercial albeit processed at suido residential rates.

    3) The asset must be self servicing so you cannot rely on other income within the fund to support the borrowings. Obviously the SMSF has to fund the shortfall such as Rates, Insurance etc.

    I have finance half a dozen or so and lenders require so much paperwork it is not funny.

    Richard Taylor | Australia's leading private lender

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