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Smsf

SMSF Property Selection

Apart from the usual good real estate investing principles such as being close to transportation, shops, schools, parks, etc; we have added a few extra selection criteria for the investment properties to make investments work better and remain safer for superannuation purchases.

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Setting up a SMSF

Complete applications to set up the SMSF and Bare trust after agreeing to terms of payment. Notably, there are several providers for this service, each offering different service levels.

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Investment Strategy and
Portfolio Construction

All SMSFs must have an Investment Strategy but not everyone knows what this is. When an SMSF is setup it usually has a generic or template Investment Strategy to tick the compliance box but many of these would fail if scrutinised under an audit.

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SMSF Borrowing and
Taxation Considerations

Once a decision to set up a fund is made, and assuming this is deemedan appropriate investment for your circumstances...
There are many considerations from a tax perspective on the topic of investing in property using super...

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SMSF Finance and Signing
Contracts and The Process

The loan is taken out by the SMSF. The assessment of finance is always around the details of the fund itself, including it’s cash flows and it’s assets.

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A SMSF is a trust run by members, regulated by the Australian Securities and Investments Commission (ASIC) that provides retirement benefits to the beneficiaries of the trust. An SMSF can provide a number of benefits which can help you achieve your retirement objectives within its structure. Some of these benefits include:

    Flexibility of investment options

  • Establishing a SMSF will give you access to a greater number of investment options and thus allow you greater control of your money. Options for assets you could invest in include term deposits, direct shares, international securities, foreign exchange trading, bullion and, where appropriate, commercial property
  • Consolidating Family Super

  • Having all your superannuation consolidated into one account is extremely important. Establishing a SMSF provides the ability for husbands and wives and even siblings to consolidate their super under the one investment structure.
  • Multiple fund members

  • A SMSF structure provides for up to a maximum of 4 members within it. Having multiple members in the fund, can increase the amount in the SMSF available for investing as well as reduce the total overall fees payable to administer the fund.
  • Tax Effectiveness

  • The applicable tax rates for compliant superannuation funds range from 0-15% rather than your marginal tax rates.
  • Have Control over a larger asset (property) than you could previously;
  • Gain the ability to Leverage an asset in superannuation and increase your potential outcome;
  • Enjoy greater Flexibility in your investment choices;
  • Take up the opportunity for you and your spouse or other members of the family to pool your Super together to enhance your retirement benefits;
  • Enjoy Considerable Tax Savings and benefits;
  • Diversify your investments beyond the restrictions of only investing in shares or managed funds;
  • Minimise Capital Gains Tax to as little as 10% if you hold the property for more than 12 months.
  • Having more direct Control over your investments;
  • Sharing management of the Fund with up to four members of your family;
  • Generating a Secure Income in retirement;
  • Enabling you to Own an Investment Property through Super;
  • Increase Tax Effectiveness;
  • Greater Flexibility to make changes as you need to;
  • Greater Protection for family.

1 SMSF take longer than you think

SMSF loans are complicated because they involve a number of Trusts and associated parties; Borrowers, Guarantors, Beneficiaries, Directors, Trustees are all part of the application. Each of these parties has rights under the law and each of them is protected by carefully worded Trust Documents. Lenders are wary of being in a position where someone could be at risk of losing their superannuation so they will make sure that all parties to the transaction, themselves included, are adequately covered. In particular they want assurance that you understand your responsibilities. That usually means you are required to get independent Legal and Financial Advice. The Lender will also verify that your SMSF Trust and Bare Trust conform to the Legislation by having their Legal team go over it and they may ask for corrections or amendments to be done. Of course, processing all of this documentation takes time so be prepared to move quickly if you have to.

2 Interest rates are not important

SMSF loans have a higher interest rate than a traditional Home Loan and they are not included in the Professional packages offered by many Lenders. Most Lenders have similar rates for SMSF loans. The good news is that the interest rate is not as important as the features you choose as part of the loan. These features should complement the most efficient use of your remaining Super balance. Directing these funds into an Offset account connected to your SMSF loan can prove to be an advantage by reducing the interest that you pay while still being able to use the money if you want to. Given that borrowing in SMSF structures is limited to Acquisition only it’s clear that a SMSF loan is more of a set and forget proposition. Rather than thinking in terms of reducing the debt, perhaps think more of increasing your Offset balance. The more money you have in your Offset account, the less interest you will pay.

3 Advertised LVRs are misleading

Most of us tend to think in terms of standard LVRs (Loan to Valuation Ratio) when we think of borrowing. SMSFs are different though. The most you can get will be 80% LVR but the majority of Lenders will limit you to 70%. However, as the method used to determine your borrowing capacity is built around your Super contributions it’s possible you may not get 80% LVR anyway. In fact, most borrowing tends to sit around the 50% to 60% LVR level. It’s important to understand that it’s your Super Contributions that are the primary source of repayment and they only comprise 9.5% of your Gross Income. From a borrowing perspective that is the limiting factor. More than any other loans, SMSF LVR’s are driven by income. While the low numbers may seem harsh, the good news is that the property may be self-sufficient faster than you thought.

Experts in this field are rare and here at Investors Direct we are very driven to assist investors to make theright choice with their super monies. We assist with:

  • Property advice for the purchasing decision;
  • Finance advice for raising funds to secure property;
  • Financial Planning advice for assistance with the numbers and a coordinator for the process to ensure the process flows smoothly; and
  • Rental Management to ensure your property is well maintained and you obtain and keep tenants.

GET YOUR SUPER SORTED TODAY by contacting our advice team on 1300 264 932 or email invest@investorsdirect.com.au

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Investors Direct Financial Group

Investors Direct Financial Group (IDFG) was established in 2001.
Our mission is to help our clients achieve and maintain their financial freedom.

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