300K in SMSF, How big a loan can we get?

Wife and myself are considering her going back to industry fund and possibly a wrap for me. We can each contribute 25K concessionally annually so just seeing what our budget should be for loan in the current climate with many lenders pulling out

What have you guys seen written recently with what kind of liquidity ratios, LVRS and interest rates? I am a professional health business owner and my wife is a doctor working part time (2 young kids) and we have combined income of around 250K

We are both mid thirties so 25 year P+I loan seems the go

 

are you asking how much a SMSF you are members of could borrow?

It will depend on serviceability, but you should allow for the SMSF to have about 40% deposit at least.

But do you really think a SMSF borrowing to buy property is a good idea/?

 

Thanks Terry

40% plus 5% stamps and a bit of liquidity means budget would be about 600K purchase then?

Not really as we set one up with accountant 12 months ago with that in mind but a lot has changed in the one year in regards to property lending especially in SMSF space.

I think my accountant led me into it and wants to charge me 0.8% on top of the 3K in audit/accounting fees to tell me what funds I should put my money in.(what a rip off as I know more about shares than this guy). Also after this they want to get 80% commission first year on life inusrance/IP and 20% ongoing.

Want to rule out buying property so can close the fund and go back to a industry fund or a wrap and maybe come back later to purchase a clinic for my wife to consult from.

 

You can structure it in the traditional way as in an SMSF loan.

However since your wife is a doctor you may be able to borrow an unsecured loan and then on lend it to the SMSF. This (and the traditional SMSF loan) will be highly dependent on serviceability though.

 

They are money spinners alright - but not for you perhaps

 

I think the prudent answer would be to avoid SMSF loans for now.

 

This post is all over the place, are you sure he's just an accountant? Anyhow, instead of rushing into a decision, why not get a second opinion from another adviser?

By the tone of your post it sounds like you don't like (or trust) your current accountant...

 

Why is that Marty?

Cheers Ivan

 

Hi there

Sounds like your accountant is a financial planner.

Re loans, SMSF loans are based on contributions plus rental income, and if you are self employed you will need 1-2 years of returns to confirm you can afford to contribute.

Generally, SMSF resi is max LVR 80% and comm is 70% - subject to serviceability.

Rates are higher than std investment loans.

Cheers Ivan

 

Sorry in advance for the long reply. Had a few reds.

One of my main risk criteria I adopt when advising someone on whether it’s safe to bid at auction is how many other lenders would approve their application all things bring equal. If it’s only 1 or possibly 2 it’s a risk they probably shouldn’t take. The borrower should at least be made aware of the risks. if something goes wrong with a valuation or there is an issue with the pre approved lender changing the goal posts between pre approval and formal approval you need back up.

I apply then same when thinking about purchasing another property. Even if the loan works with 1 lender if there are no other refinance possibilities after the purchase you are potentially putting your client into a position where they are a captive. I try not to encourage this. Need options.

The same applies here imo Ivan. Too few lender options to be a safe bet. There is not enough appetite to be competitive and moving goal posts / potential government / regulator risk to boot. What rate are those captive SMSF loans going to be at compared to home loans in 10 yrs time?

 

a lot of them are nowadays as it is more profitable to keep changing hats whenever it suits them

 

Yeah - i'm one of them.

Cheers Ivan

 

Don't apologise! Lets see where SMSF loans will be in 10 years time, its safe for at least 3 years and most likely 6, and the property market is and has rebounded significantly.

Smsf loans are still staying strong and you will see more non-bank lenders getting competitive. Less people are buying off the plan and instead buying established which to me takes away much of the risk and the headaches I have had with SMSF loans. The uncertainty over the last 18 months were due to two factors - 1. Bill Shorten - he is done 2. Royal commission - this led to the big banks exiting the space - nothing to do with competitiveness rather their breaches of the SIS act and ASIC report 575.

The volume of SMSF loans now are ridiculous, now that Libs are back in and people are optimistic about the property market.

Thanks again

Cheers Ivan

 

@kaibo talk to your broker to assess how much your SMSF will be able to borrow.

SMSF loans invariably need personal guarantees. This will effect your borrowing outside super. Some banks overlook this but not many.

If at all possible, consider a price point where the property is close to self paying without any need for extra concessional contributions i.e. rent + employer SGC.

 

There is also the ability for a ungeared unit trust (SIS Reg 13.22) if there is property equity outside the fund. This strategy may be suitable in some cases and allows the fund to co-invest in a positive geared manner while the other units in the fixed trust are owned by a related party (ie one or both members) who are negative geared on their portion. For a higher income earner this can really make a difference.

No guarantees, no complex related party loans etc.

This strategy can be easier, cheaper and access negative gearing at the taxpayers marginal rate while allowing the SMSF to produce returns taxed at a low rate. Depending on which state the property is located the % share of trust ownership could also be modified over time so the SMSF acquired more with earnings and contributions without stamp duty and with small incremental impacts of minimal CGT over time. Aim is 100% SMSF ownership. Property is unencumbered making cashflow work. Thats a retirement strategy!

The strategy needs advice as there are many rigid rules to address.