Before you start doing anything you must be very clear on why you want to buy property in a SMSF. For that reason alone you should seek out a SMSF qualified Financial Planner and discuss your reasoning for getting one. You need to understand how a SMSF works and what your responsibilities are from a governance standpoint.
A Financial Planner will discuss your goals and how a SMSF fits into what you want to achieve. A SMSF works best as part of a dedicated Financial Plan and expressing your goals in a formal plan means you are more likely to achieve them.
Best of all, a Planner will keep you accountable for sticking to your Plan. This is one of the keys to getting what you want. Your Planner will take you through the responsibilities you will have as a Trustee for a super Fund as well as your obligations to the beneficiaries of the Fund. From your point of view, the ongoing costs of running the fund and the fees for completing tax returns must be understood. More importantly, your Planner should be able to answer these three questions for you.
- Is a SMSF suitable for your circumstances?
- Does it meet your goals?
- Can you afford it?
The next step is to find out how much you can borrow. This gives parameters for purchasing a property.
The finance cycle is very important to buying property through a SMSF and should be viewed in conjunction with the Financial Planner’s advice. In fact, the Financial Planner and the Mortgage Advisor should both be clear on what their respective role is as well as having an understanding of what you want.
The Mortgage Advisor will be able to give you a broad parameter of any property purchase. Things like property type and postcode will narrow down the search. Banks have a huge say in what can and cannot be used as security these days that your Broker will be able to point out the features an acceptable property should have. As strange as it may seem, finance dictates the property type and that’s because there is no point in finding the best property for the right price if it is not acceptable to the Bank.
Your Mortgage Broker will also be able to explain the current loan features that would suit your situation. These features will be directly related to the strict Legislative requirements around borrowing for a property to be held in a SMSF structure.
Your Broker should be able to answer these three questions for you.
- How much can you borrow?
- Understand the costs?
- What are the features best suited to a SMSF loan?
The next step is to find a suitable property to buy. Naturally you can specify the general outline provided by the mortgage Broker from a finance point of view.
Purchasing property can be a very daunting task, even more so when the purchasing entity is part of a SMSF structure. We recommend you find an experienced SMSF Property Advisor. Ideally, your advisor will be able to translate the finance parameters into a tangible asset for your SMSF. Keep in mind the type of property and borrowing capacity you were advised of so you can match it to any property presented to you.
Properties being used as security for SMSF are limited in scope so you will need to rely on your Property Adviser somewhat. A key point to note is the need to have a single contract when buying property through a SMSF with the correct purchasing entity on the Contract of Sale. There should also be a logical method behind selecting property that can be explained to you. Your property Advisor should be able to answer these three question for you.
- What type of property should you buy?
- What suburb should you buy in?
- What criteria is used to select property?
Anybody who is inexperienced dealing with financial goals, sorting complex finance applications and selecting appropriate properties for SMSF structures should seriously consider using professionals.
Superannuation is a significant part of your retirement strategy and should be treated with the importance it deserves.
Why not take the first step and talk to one of our Financial Planners about SMSFs today.