Forums / Property Investing / Creative Investing / Buying an investment property in my SMSF

Viewing 12 posts - 1 through 12 (of 12 total)
  • Profile photo of Roxy laceyRoxy lacey
    Member
    @roxy-lacey
    Join Date: 2013
    Post Count: 10

    Hi everyone, I am hoping to  get some helpful advice! My husband and I have just brought 2 IP' s through the equity of our PPOR, we now want to use our super ($263,000) to purchase another! My question  is do I borrow the maximum I can and purchase 2properties or should I only spend what I have in super plus a small loan if needed so the majority of rent received will pay off my PPOR so in return I can use that equity to buy more properties?

    any SMSF advice will be great .

    thanks 

    roxy

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Maybe i misinterpreted your post, but If you buy in a SMSF the rent cannot be used to pay down your PPOR. Rent received by the SMSF belongs to the SMSF and you can only access your super money once you meet a condition of release.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Roxy laceyRoxy lacey
    Member
    @roxy-lacey
    Join Date: 2013
    Post Count: 10

    Hi terry, I was under the impression if I set the SMSF up with a legal interest and a beneficial interest , the beneficial interest would receive the rent or proceeds from a sale. What were your thoughts on  maximum borrowing or minimal borrowing?

    thanks

    roxy

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Not sure what you mean by that.

    If there is borrowings involved then the property must be held under trust until the loan is repaid. the legal owner is the trustee of this custodian trust. The beneficiary owner is the trustee of the SMSF for the SMSF members. So any income will go to the SMSF to be held in trust for the members until they meet a condition of release.

    Since a SMSF loan cannot be increased it is worth considering obtaining the highest LVR as possible – generally 80% – and then this can be paid down as required, or extra funds parked in the offset account.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Roxy

    I think you definitely need to seek Professional advice before going down the SMSF path.

    When you purchase a property inside a SMSF all of the rental income is quarantined within the fund itself and can only be used to repay the SMSF loan itself. It cannot withdrawn for personal purposes or to pay off your PPOR.

    Depending on your level of employer / personal contribution and the likely rent you will receive I would suggest you went with an 80% lend and then place the balance of your SMSF in a linked offset account. This gives you flexibility and choice going forward.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Roxy laceyRoxy lacey
    Member
    @roxy-lacey
    Join Date: 2013
    Post Count: 10

    Thanks terry and  qlds007,

    yes, i do have a lot to learn and will seek professional advice,  can you  let me know how the offset account would work and can I access that money?  Let's assume I purchase a $500,000 property, we put in $1200 a month and we receive $1600 a month in rent, 

    thanks for for being patient with a novice!!

    also, can I purchase more than 1 property with the SMSF loan?

    thanks

    roxy

    Profile photo of RedwoodRedwood
    Participant
    @redwood
    Join Date: 2013
    Post Count: 340

    Hi Roxy, great that you are thinking about using your Super to build your property portfolio. With borrowing through an SMSF is complex however, can be very easy with the right advice as has been eluded to above.

    Re the 1st question, yes with $263k in Super you would be able to purchase more than one property. However, this will depend on the purchase price.

    Use the example of residential property purchased for $400k. You will need 20% deposit, or $80k in super (which you have) plus acquisition costs (stamp duty, loan fees and accounting and legal fees). You can for a resi loan obtain 80% LVR generally subject to servicability being satisfied.

    For each property purchased using a borrowing, you will need to set up a structure commonly referred to as a bare trust. Remember this is for EACH purchase. 

    You can also use a 'related party' loan which again will require advice.

    Remember in a super fund, you need to satisfy the sole purpose test, which means for a residerntial property you cannot live in the property, it must be rented out at arms length.

    Re servicability of the loan, think of a property that has a 5% yield, 'generally' this will cover your loan repayment and additional cash contributions (at a concessional rate) can be used to build your retirements savings andpurchase more properties. We have many clients thinking this way, and I support it with the right education .

    Hope that helps, and happy that we can educate you on the SMSF journey.

    Cheers, Ivan

    Redwood | REDWOOD | SMSF | PROPERTY | FINANCE
    http://redwoodadvisory.com.au
    Email Me | Phone Me

    SMSF - PROPERTY INVESTMENT - WEALTH CREATION AND FINANCE SOLUTIONS

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110
    Roxy lacey wrote:
    Thanks terry and  qlds007,

    yes, i do have a lot to learn and will seek professional advice,  can you  let me know how the offset account would work and can I access that money?  Let's assume I purchase a $500,000 property, we put in $1200 a month and we receive $1600 a month in rent, 

    thanks for for being patient with a novice!!

    also, can I purchase more than 1 property with the SMSF loan?

    thanks

    roxy

    You have to distinguish between you and the SMSF. If you purchase a property similar principles apply, but I assume you meant if the SMSF purchases a property and if the rent is $1600 and costs per month, including interest is $1200 then there will be a profit of $400 per month taxed at 15% in the fund. But don't forget there may be non cash deducctions such as depreciation and loan costs, so the taxable profit may be much lower. If the profit is negative, i.e. a loss then this loss can be used to negative gear other income of the fund such as your 9.25% employer contribution. so instead of that being taxed at 15% on entry there may be no tax

    The offset works like this:

    $200,000 loan with $50,000 in offset = interesst payable only on $150,000 of the loan.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    As the others have explained, you cannot use SMSF money to pay off your mortgage.

    I think the confusion you are experiencing is due to the terminology "beneficial interest".  I'll explain what it means.  I suspect you think that "YOU" are the beneficial interest and thus you get the rent.  This is not the case.

    The "legal interest" is the entity set up to "own" the property while it is under mortgage. The easiest way to think of it is that it is a mini company+trust structure set up within the super fund.  Each property under mortgage will have its own little setup.

    When the mortgage is paid off, ownership of the property shifts to the "beneficial interest" which is the SMSF itself. 

    In the meantime, while the mortgage is getting paid off, the rents are coming into the main SMSF bank account (ie the beneficiary's bank account) anyhow.  Unless the SMSF has its bank accounts set up differently.

    The SMSF will only be able to borrow a maximum of 80% of the property purchase price.  Banks will not lend any higher on this for residential property being purchased in super.

    You cannot leverage equity growth in a SMSF property.  That is, you cannot keep the SMSF property that has grown in value and use its value growth to fund deposits of further properties. The only way to get at that value growth is to SELL the property, divide the pile of money into two and buy two properties.  I hope that makes sense.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Roxy laceyRoxy lacey
    Member
    @roxy-lacey
    Join Date: 2013
    Post Count: 10

    Thanks everyone, I am starting to understand a little bit more! Can anyone suggest someone I can meet with to go through the whole process with me? I am in the eastern suburbs of melbourne

    thanks

    roxy

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Roxy

    Where are you based?

    We run a number of SMSF workshops throughout Australia so maybe we can get you along.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Roxy laceyRoxy lacey
    Member
    @roxy-lacey
    Join Date: 2013
    Post Count: 10

    Hi Qlds007,

    i am based  in the Yarra valley but work in lilydale! Melbourne CBD is about 1hour!

    cheers

    roxy

Viewing 12 posts - 1 through 12 (of 12 total)

You must be logged in to reply to this topic.