Borrowing in SMSF for IP

With the new laws that have come in, my understanding is that you can now only borrow up to 70% of the property value instead of the usual 80% Is that correct?

In a situation where you do not have the 30% available (ie lets say balance of funds are tied up in shares, other funds, etc), what can you do other than selling down these assets to have the 30% available so that you can take out the loan?

Can the person who has the SMSF loan money to the SMSF?

 

Yes, you can lend money personally to a SMSF. Documentation is key - and a few points to ensure your lawyer has addressed:

1. Interest Rate - what rate is acceptable to maintain arms length requirements? This is always a risk, but if documented with regard to the terms of the loan can be overcome.

2. Security - what security are you taking for making the loan? Bank will take a 1st Registered Mortgage - you will most likely be left with a documented, but unregistered mortgage on the property.

3. Servicing - Interest is charged monthly, payments being made, etc. I cant see that you'd be able to capitalise interest and defer payments.

4. Accessibility of Interest Income - you are lending money and receiving interest on it. Deductible to the super fund, but assessable to you. Aka "Tax Leakage".

It will be expensive to set up ($12k for our legals + 12k legals for the bank) and your bank will be nervous about the structure, but it can definitely be done.

 

you can still borrow 80% with SMSF for the time being. A couple of lenders have restricted their 80% to P&I loans. Regarding lending to the SMSF, Ill leave an expert in the field to comment. However one of the major drawbacks to SMSF lending is the inability to refinance for further deposits to grow the portfolio.

 

I don't know of any new laws limiting SMSF borrowings. some banks have recently dropped LVRs though.

I think you will find it very difficult for a SMSF to find a commercial lender willing to lend where the deposit will also be borrowed - though it is possible in theory.

 

Thanks for the replies so far. Just to clarify, I'm not interested in taking out a loan in own name to lend money to the SMSF, I can use existing own cash buffer instead. Also, the smsf working account in this example is through Westpac, so does anyone know if they still do loans at 80%LVR?

Also,

will it really cost this much, even if lending money from own name that you already have?

 

I had assume this in my reply. The SMSF will be borrowing 100% and this is what th banks won't like.

legal work could be done for much less than $12k too.

 

Or in this case it would still be 80% borrowed, ie 70% bank loan, 10% from own name, and 20% from within smsf. Is that still ok?

 

I should have made mention there were a few extenuating circumstances involved in the acquisition and it was a massive $ industrial property deal. Nonetheless the bank had real concern with the legal sign off that the structure of the related party loans was OK from a SIS Act perspective - the advice we had sought on the structure basically had to be replicated by the banks lawyers so they had independent opinion that it was compliant.

For 10% related party lend in, I would genuinely question if its worth the hassle to loan such a relatively small amount into your super fund unless the bank doing the SMSF loan has zero concerns with the structure from the onset.

 

Yes - if set up properly and there is a lender willing to lend.

 

At the moment Westpac do 70% LVR for both individual and coporate trustee for purchase of residential property, purchase of commercial property is 65% LVR for corporate trustee and 58.5% for individual trustee

 

We tried to settle an IP using bank loan for a smsf purchase. The amount of documents required is so much that we end up doing a redraw against PPOR and lend it to the SMSF. If you do use bank fiance for SMSF purchase, make sure you have a very long settlement period and also have a backup finance plan ready in case.

 

Does Westpac or any other lenders offer an offset account attached to the loan?

 

I know St George does but unfortunately Westpac doesn't

 

Hi there -

SMSF Lending is tightening up - lenders such as St George/ BOM and La Trobe have now limited lending to 70% LVR. There are still a number of lenders that will do a 80% LVR with certain conditions. For Instance Macquarie requires a min balance of $200k, and others have liquidity requirements. The 80% lend will be tougher for off the plan than established property and for off the plan Genworth high density comes in for certain post codes.

AMP used to have offset and now they are gone - St George does and a non bank has offset plus 80% lend which is awesome!

Please do your numbers carefully as valuers are very conservative at the moment with valuations which will reduce your loan amount if it does not come up.

Cheers Ivan

 

Gemworth?

 

Mortgage insurer. They make a lot of the rules, and when they don't they still influence risk with a lot of lenders.

 

eSuperFund uses these:

- Bank of Melbourne/St George
- Commonwealth Bank
- Macquarie Bank
- Resimac Platinum

The bank products are straight forward, but can't find too much info about Resimac Platinum.