Self Managed Super (SMSF)
Note: Many lenders have left this area of lending in recent months however we still have some good options
Property investment strategies based on negative gearing used to be all the rage – with those who fancied lower risks ensuring that they paid their house off fully first. Those ideas are still important, but the changes made over the last five years have really tilted the playing field towards a new player – superannuation. Many people in their 40s and 50s are realising that they can transition to a flat tax of 15% and often lower by increasing their use of superannuation. It may not be very fair to those slaving away paying much higher rates of personal tax, but that’s the way the system is set up.
At Peach we want you to be aware of the issues so that you can be in the driver’s seat. There is talk of investment advisors earning very big commissions on certain off the plan developments – this creates an enormous risk of conflict of interest. We do not take commissions from anyone but lenders and so we have no conflict however we are not investment advisors and so we cannot recommond that a SMSF loan is the right path for you. We suggest that you find an investment advisor who will advise you in general terms rather than on specific investments. Meanwhile we don’t try to be a ‘one stop shop’ we only arrange finance so why not call us now on 1300 137 586 and speak to a broker who understands the complexity of borrowing for a self managed super fund.
The addition of Section 67(4a) of the Superannuation Industry Supervision Act (SIS Act) now makes it possible for SMSFs to borrow – however there are restrictions. You have to tread very carefully through a minefield of potential fees and extra costs not to mention the possibility of double stamp duty and capital gains tax (CGT). Recent changes can also mean that your ability to leverage equity held in the fund is restricted. First and foremost you need good, informed, independent legal, financial and mortgage advice.
This page is not intended as advisory, it is a superficial outline of the process and structures required.
The first part of the process is to get good financial advice. Keep in mind that many financial advisors work under the licence of a company as an employee or authorised representative and this means that if the company is XYZ Bank and Financial Services for example they will be promoting XYZ products, and as a result they may not be experienced or focused on property as an avenue for investment. In such a case you should consider an advisor who holds their own licence and can assess your SMSF options in the light of all investment possibilities. We don’t give financial advice or legal advice and we also believe that financial advisers who have referral arrangement with developers or mortgage brokers proposition may also have a conflict of interest.
As there is limited recourse the quality of the security property is critical. As a result most lenders are only prepared to accept metropolitan and larger regional locations and standard residential or some commercial property. The security cannot be an asset that you currently own, so for example you can’t finance the existing family home – the arm’s length rules still apply and the borrowing must be undertaken in order to purchase an asset in the super fund. The loan by its nature must provide the lender with limited recourse ie: the lender can recover the debt from the asset offered as security but cannot access any other assets in the super fund. This does not mean that your SMSF funds are protected, after all you are possibly going to have to offer a substantial deposit and in the worse case those funds are exposed. There are now quite a few lenders offering limited-recourse products and most, if not all will require an additional guarantee from the fund members and/or the directors of the trustee.
The loan product features, the rates and fees vary widely and that’s where we come in. As in all scenarios there is more than one way to skin the cat, so why not call us now for a discussion on what we can do for your SMSF borrowing.