More and more Australians are buying property in a SMSF to create wealth and income for their retirement needs. Some of the things you need to consider before embarking on your SMSF property journey or before obtaining an SMSF loan are the following :
- How much income do I need to service a SMSF Loan and what income does a lender consider?
- Do I have enough saved in super to purchase the property?
In most cases for existing SMSF’s the first stop is to check your trust deed to ensure you are able to borrow funds to purchase an investment property in your SMSF. For those considering setting up a SMSF to purchase property, an SMSF borrowing assessment is a great first step, which will give you an indication of what you can borrow so you know your property price range.
Now armed with the knowledge of your borrowing capacity, lets look at the requirements to obtain a SMSF Loan using an example of a property valued at $550,000. Most lenders require that you can service the loan and pay the property purchase costs including some contingency buffers.
WATCH THE SMSF BORROWING VIDEO
01 SMSF LOAN PURCHASE COST TEST
- Property Value: $550,000 Queensland
- Deposit : $165,000
- Stamp Duty: $19,346
- Loan Fees: $2850
- Setup Fees : $2800
- Legal Fees: $1400
- Liquidity buffer 10% of property value : $55,000
With most SMSF Lenders, you will need to have enough for a thirty (30%) deposit, stamp duty, loan, setup and legal fees and investment buffer. Based on the above example, you will need to have $246,450 in super to purchase this property between 1-4 people.
Now once you know that you can fund a property purchase the most important test is the loan servicing test. SMSF Lenders will include the following types of income and they will add up to a 3% interest loading to the loan interest rate.
02 SMSF LOAN SERVICING TEST
Loan Amount – 70% of property value = $385,000
Interest rate – 5.40%
Interest stress loading 3%
Rental income – $415 per week
Super contributions – $28,000 ( for a couple )
Income a lender accepts
- Super Contributions: Employer (9.5%)
- Super contributions: Salary sacrifice or personal
- Property rental income