How Do I Purchase Property?

[vc_row fullwidth=”true”][vc_column][mk_page_title_box page_title=”HOW DO I PURCHASE PROPERTY IN SMSF?” section_height=”300″ bg_image=”https://www.mysmsfproperty.com.au/wp-content/uploads/2014/09/businessbanner.jpg” bg_position=”center top” bg_stretch=”true” overlay=”rgba(10,10,10,0.7)” bg_effects=”parallax” font_size=”42″ font_color=”rgba(255,255,255,0.7)” font_weight=”400″ underline=”false” padding=”0″ sub_font_size=”24″ sub_font_color=”rgba(255,255,255,0.51)” el_class=”title”][/vc_column][/vc_row][vc_row css=”.vc_custom_1492394426664{margin-top: 5% !important;}”][vc_column][vc_column_text]

So you are thinking about a property in a SMSF as you cannot afford one personally or you have invested successfully outside super and you want to duplicate this strategy. Most people setting up SMSF’s are doing so for these key reasons

  • Desire more control and choice
  • Direct ownership of assets
  • Deductible operating costs, insurance costs and interest and depreciation deductions on properties

Buying a property in a SMSF is similar to buying property with a few differences. You will need to have enough to fund purchase costs, you will need to be able to service a smsf loan or limited recourse borrowing arrangement (LRBA) and you will need some structures in place to purchase the property and borrow fund to complete the property purchase

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][mk_padding_divider][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492183301063{padding-top: 50px !important;background-color: #fafafa !important;}”][vc_column width=”2/12″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ margin_bottom=”0″ font_family=”none”]STEP 1[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”10/12″][vc_column_text]The first step is to determine what you can borrow so you know your maximum property purchase price. If you are setting up a SMSF to buy a property, this is a prudent first step.[/vc_column_text][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492396929531{padding-top: 50px !important;padding-bottom: 30px !important;background-color: #ffffff !important;}”][vc_column width=”1/6″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ margin_bottom=”0″ font_family=”none”]STEP 2[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”5/6″][vc_column_text]You will need to have

  1. SMSF Savings $150,000 between 1-4 people
  2. Receive or make super contributions
  3. Be willing to take on more responsibility to gain more control and choice

[/vc_column_text][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492396951616{padding-top: 50px !important;padding-bottom: 30px !important;background-color: #fafafa !important;}”][vc_column width=”1/6″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ margin_bottom=”0″ font_family=”none”]STEP 3[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”5/6″][vc_column_text]You will need the following structures in place in order to borrow to purchase a property in an SMSF.

  1. SMSF Trustee Company / SMSF Trust
  2. Property Trustee Company / Property (Bare) Trust

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Now you don’t need to follow all of these steps in this order, but we suggest that if buying a property in a smsf is your goal, then step one is the best option, before you part with money to setup an smsf, You might need to get advice on your responsibilities the property strategy and estate matters, or you can use this information to calculate purchase costs so you are ready to start your smsf property journey. The example below provides more clarity.

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EG: New SMSF Property Purchase – Queensland

  • Property Value $400,000
  • Rental income is 4% or $22,000 p/a
  • Super contributions: couple’s total income $150,000 = $14,250 (9.5% SG)
  • Deposit 30% $120,000
  • Stamp Duty $13,501
  • Legal/Loan/Bare Trust cost $4,500
  • Liquidity test 10% of property value left in SMSF $40,000
  • Stress test of 2.5% – 3%

[/vc_column_text][mk_padding_divider size=”20″][vc_column_text]To purchase this property and to setup a SMSF you will need to have:

  • You will need to have at least $180,000 saved in super between 1-4 people
  • Receive or make super contributions
  • Rental returns of 3% +
  • Willing to take on more responsibility for the operation of the fund

[/vc_column_text][/vc_column][vc_column width=”1/2″][mk_image heading_title=”SMSF PROPERTY DIAGRAM” src=”https://www.mysmsfproperty.com.au/wp-content/uploads/2017/04/buy-property-efb6557a6a75c7d3fb0a5f961d154cf4.jpg” image_size=”full” align=”center”][/vc_column][/vc_row][vc_row css=”.vc_custom_1492406998373{padding-top: 50px !important;}”][vc_column][mk_fancy_title color=”#0a0a0a” size=”32″ font_weight=”400″ font_family=”none” align=”center”]SMSF LOANS ( LRBA’S )[/mk_fancy_title][/vc_column][/vc_row][vc_row css=”.vc_custom_1492402907545{padding-bottom: 30px !important;}”][vc_column][vc_column_text]Most lenders will lend seventy (70%) of the property value and a stress test interest of 3% on top of the lenders interest rate of EG:5.40% will mean servicing interest is calculated at 8.4% on a principal and interest basis. Add to this a reserve or liquidity test or a diversity test of ten (10%) of property value or SMSF balance or invested in other assets and this covers what most lenders require to fund a property in super purchase. There are exceptions and other conditions but these are the key requirements.[/vc_column_text][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492396951616{padding-top: 50px !important;padding-bottom: 30px !important;background-color: #fafafa !important;}”][vc_column width=”1/4″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ margin_bottom=”0″ font_family=”none”]WHAT ARE THE RISKS?[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”3/4″][vc_column_text]

  • The strategy is not completed properly, resulting in a compliance breach which is noticed byyour auditor
  • Double stamp duty, due to incorrect structure and advice
  • Longer time taken with lending and settling property due to lack of understanding of the SMSF Lending process
  • Property based risk – delayed build and settlement, untenanted property, higher management costs compared to ETF’s, shares and managed funds

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WATCH THE SMSF BORROWING VIDEO

[/vc_column_text][/vc_column][vc_column width=”1/6″][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492404306399{padding-top: 50px !important;padding-bottom: 30px !important;background-color: #ffffff !important;}”][vc_column][mk_fancy_title color=”#0a0a0a” size=”26″ font_weight=”400″ letter_spacing=”1″ font_family=”none” align=”center”]THE BENEFITS OF OWNING PROPERTY IN A SMSF[/mk_fancy_title][mk_table]

Tax rate Deposit/ Stamp Duty CGT Loan Repayment Rental income (Taxed at)
Personal 30% – 45% personal savings 30% – 46.5% 30 years 38.5%
SMSF 10% – 15% use funds in super 15% before age 55, 0% after 55 *15 years 0% – 15%

[/mk_table][vc_separator el_width=”60″ css=”.vc_custom_1492416644911{padding-top: 30px !important;}”][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492416652472{padding-top: 10px !important;padding-bottom: 30px !important;background-color: #ffffff !important;}”][vc_column width=”1/4″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ margin_bottom=”0″ font_family=”none”]WHAT KIND OF PROPERTIES CAN
I BUY?[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”3/4″][vc_column_text]

  • Existing Properties
  • Off the plan
  • House and Land
  • Commercial Properties

All properties purchased in a SMSF must be a single title, single contract purchase. There are some exceptions, but this is very important so you remain compliant with the super laws ( SIS Act)

[/vc_column_text][/vc_column][/vc_row][vc_row fullwidth=”true” fullwidth_content=”false” css=”.vc_custom_1492396951616{padding-top: 50px !important;padding-bottom: 30px !important;background-color: #fafafa !important;}”][vc_column width=”1/4″][mk_fancy_title color=”#393836″ size=”20″ font_weight=”500″ font_style=”normal” txt_transform=”uppercase” letter_spacing=”1″ font_family=”none”]WHAT YOU CANNOT BUY IN A SMSF[/mk_fancy_title][mk_divider style=”thin_solid” divider_width=”custom_width” custom_width=”70″ align=”left” thin_single_color=”#4c82c3″ thickness=”3″ margin_top=”0″ margin_bottom=”50″][/vc_column][vc_column width=”3/4″][vc_column_text]

  • A property you already own
  • A property owned by a relative
  • You cannot provide accommodation or housing for your family members or your relatives in a property you purchase
  • A Holiday house that you intend on using occasionally

[/vc_column_text][/vc_column][/vc_row][vc_row css=”.vc_custom_1492408405146{padding-top: 45px !important;padding-bottom: 30px !important;}”][vc_column][vc_column_text]So buying property in a SMSF comes with more complexity, but the trade off is greater levels of protection, less tax and greater benefits. When you combine mandated employer contributions funding your property along with property rental income in the lowest tax structure you get, arguably the best vehicle to purchase property for wealth creation purposes.
With foreign investors and more seasoned property investors buying most of the blue chip propertyaround the eastern seaboard, an SMSF gives families and groups an opportunity to get into the property market and purchase and repay property in less time than it takes when buying a property outside of super. Of course SMSF are not for everyone, many Australians are better off in retail and industry funds where they can gain exposure to property via a managed fund or reit. Conduct research on your SMSF and property purchases and speak to friends and collegues who will give you an idea of whats involved.
The ATO has some great explainer videos on SMSF’s, property and your annual obligations.
The Money Smart website has good calculators and articles to assist.
Finally, where in doubt, seek advice or engage a smsf specialist provider, who can assist you with your needs
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