Purchasing a property in SMSF

I would say you should look at around $200k in super before considering setting one up.
I set them up for about $5,000 including 2 companies and 2 trusts and legal advice on the corporations law, trust law and SIS act etc. It is my view only lawyers are qualifed to set up companies and trusts. Using an accountant or fin planner is dangerous.
90K wouldn’t be sufficent. You could be breaching trustee duties if you tie up all the funds in one property. You must also allow for contingencies
yes, can use an IO loan with offset
yes the trustee can sell the property and buy another.

Hi Creasy23,

firstly, $7k is far too steep for set up. We are closer to the $2,200 mark for property set up with limited recourse borrowing ability, legals and fees.

Your super balance is not the final decider We have both set up SMSF's and helped people invest in property for less. From a lending point of view the bank will take into consideration your (and partners) age, employment, wages and more importantly super contributions. Also the rental appraisals you get done on the potential property to see if it is viable.

Someone with $70k in super could look at property in SMSF if they earn $150k+, can salary sacrifice and choose a high rental yield property.

with a low balance in play you almost need to work backwards from finding the property, to then satisfying the lending criteria. If that makes sense. (where as outside of super you might go to the bank, find out how much you can borrow, then go find your investment… you need to find your investment property, get the rental appraisal and then look at finance).

as a guide:

At $90k balance with an average income (2 partners working/contributing) I would be looking at low end townhouses possibly… $300 – $320k.

Terry, Nope. A dangerous financial planner.

yeah agreed Terry. but we outsource this to solicitors, or the client's solicitor sets this up

1. There is no hard or fact rule to how much you need. You need approx 25% of the purchase price in order to cover the 20% deposit and stamp duty charges. 

2. Cost to set up (Superfund Trust, Bare/Purchasing Trust, Corporate Trustees) should be around the $4k-$5k mark and then you need to factor in annual auditing fees of around $1k. If you are taking out a loan then the upfront fees are a little more expensive than your traditional loans. The upfront fees will be dependent on the lender and you are looking at approx $2k.

3. If you are purchasing a property for $320,000 then you will require a minimum deposit of $74,500 plus legals and lender upfront fees so plus another $4k to cover those fees.

4. Unlike traditional lenders – only 3 SMSF lenders offer Offset accounts (Dragon, The Rock and AMP). so wary before you randomly submit an application. Arguably I think that an Offset inside an SMSF is more powerful than an Offset outside an SMSF due to the reason you have noted in your email.  

SMSF loans are easy peasy but please don't try it at home if its your first time. 

Hi Creasy

There are four routes you can take to set up your smsf.  The first is by asking a professional to set it up for you, and Terryw is right, a lawyer will be involved at some point at least to supply the trust deeds – this is because to provide a trust deed is "engaging in a legal practice" {Legal Practice Board -v- Computer Accounting and Tax Pty Ltd [2007] WASC 184).  A second way is to use a bank.  A third way is to use one of the online services.  These second and third options may leave you tied in some way to continuing arrangements or investment types or brokers.  A fourth way is to do-it-yourself using one of the available online packs.  These vary in price – an average price would be about $350 if you are using a corporate trustee (plus $444 fee to pay to ASIC), or $250 if you use individual trustees. There are no additional setup fees.   In your case since the aim will be to purchase an investment property, setting up the smsf with a corporate trustee is advisable.

Within your $90K you may be over budgeting for the cost of setting up the bare trust (otherwise known as custodian trust, holding trust or property trust) which is required in a case where an smsf borrows money in order to complete the purchase of property.  Again you have the same options as before.  Average cost of diy setup packs are $250 – this is on the assumption that the fund will be using a solicitor to carry out the actual conveyancing work. 

There is nothing in superannuation law which precludes this arrangement.  So you can ask the bank whether it is available to your fund.

Yes you can, but you need to start again to set up a new bare trust arrangement to cover the new property.

Shahin,

In relation to using online packs, the only disadvantage is that a member may seek to DIY without understanding the bare trust structure itself. You can go out get a company set up and prepare a custody deed, however have no knowledge of the requirements of SIS in purchasing a property in a SMSF. That is ensuring that you structure correctly (corporate trustee), lender requirements (use of a broker for example) and key errors made by members in the property purchase….i.e pay deposit through SMSF not personally, name on contract of sale…..etc. Therefore important to receive advice from a qualified professional throughout this process to ensure you are compliant as if you make an error it will be significant in that you may be non-compliant and taxed at a marginal tax rate….

In summary, SMSF members should seek advice prior to entering into a property purchase through an LRBA, this does not have to be a $5k SOA, moreover can include approaching SMSF professionals such as administrators, lawyers etc that do these deals daily, a small cost will benefit in the long term, after all, a SMSF is a long term strategy.

Interesting – thank guys.