This form of asset/wealth creation has been affected by the recent events surrounding borrowing in the investment property market.
We have seen a number of lenders in the marketplace reduce their lending levels and begin to place tighter credit assessment/ serviceability on the remaining asset position of the fund.
In addition, some lenders have reviewed their minimum asset position of the super fund post property purchase.
Some funders in the Self Managed Super Fund arena only accept commercial property as opposed to others who accept residential and commercial properties. All of the lenders have an exclusion list and it is highly recommended that any borrower in the SMSF understands what these exclusion securities are prior to entering into a purchase.
Here are some characteristics of SMSF for consideration :-
- Property must not be acquired from a related party of a member (unless that is commercial property
- Property must not be lived in by a fund member or any members’ related party
- Property must not be rented by a fund member or any fund members’ related parties. (There is 1 exception to this, whereby with a commercial premises, the related business owner can sell to or rent from the commercial property owned by the SMSF)
- The property must be held in a Bare Trust. The Trustee of the “Bare Trust” must be different from the SMSF Trustee
- Borrowing must be Non recourse
- Borrowings cannot be used for property improvements
- No re-draws are available
- You are not able to utilize the Equity in the property for other acquisitions
- Once a loan is repaid, the property is to be transferred into the Superfund. Or, if sold, the net proceeds are to be placed into the superfund
If you are considering your options to borrow using your SMSF, contact Paul and his team today to find out what the pros and cons are.