Overview on SMSF Lending
A Self Managed Super Fund (SMSF) loan is a facility to assist trustees invest in property that would usually be outside of the cash reserve of the SMSF. SMSFs are heavily regulated and require specific processes and trust structures such as a limited recourse arrangement. You need to seek independent financial advice and legal assistance prior to applying for a loan, and any reference below is general in nature and not specific to your circumstances.
- Loan terms to 30 years.
- Invest in arms length residential, rural and commercial properties (You may be able to purchase a commercial property for your business to rent).
- Variable, fixed and combination loans available.
- Limited recourse loan, meaning the other assets of your SMSF are protected.
- Use rental income to help pay the payments.
How it works generally
Seek independent financial and legal advice:
- The regulations around borrowing through a SMSF are complex. It is important that you seek independent financial planning, accountant and legal advice as to the suitability of this investment strategy of your SMSF.
Establish or review your SMSF trust documentation:
- There has been a lot of changes to the industry regulations, regardless of if you are establishing a new trust or amending an old one, you need to seek quality advice that the trust meets all requirements.
Set up a security trust (sometimes called a property trust):
- You need to establish a separate security trust that purchases and holds the property for the SMSF. This trust provides the security for the loan by way of a guarantee.
Sign a contract and apply for a loan:
- Once you have made an informed decision on the investment, and found a property, the deposit is paid and you have a qualified solicitor draw up the contract. At this point you are also able to apply for a loan.
Who pays for the investment purchase:
- Your SMSF pays the deposit, stamp duty, legals and fees, and the loan pays the balance.
Security for the loan:
- The security trust buys and holds the property providing a limited guarantee to secure the loan. There may be a requirement for a guarantee from the trustees as well.
Repaying the loan:
- The rent received is used as the primary repayment source, but can be supported with other SMSF income or historical contributions to the fund.
Once the loan is paid off:
- When your loan completes, you can then transfer the property to your SMSF.
Note: This is a very basic overview of how the process works. In reality there is a lot of other considerations including financial adviser declarations, bank solicitors trust reviews, sole purpose test and varied acceptable trustee entities across banks.
Why CPI Finance
SMSF lending is complex in process and legislative requirements. CPI Finance has the advantage of established network referrals that can help you with investment advice, accounting and audit reviews, as well as legal partners for contracts, trust deed establishment and review, and even limited recourse borrowing arrangements outside of the banks.
“Find yourself a lending adviser that not only understands the SMSF loans, but has a working relationship with all parties involved. At CPI Finance, we talk at industry level on your behalf when dealing with our, or your professional network engaged in the contract”.