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Setting up an SMSF

Discussion in 'Other Asset Classes' started by wombat777, 22nd Nov, 2015.

  1. wombat777

    wombat777 Well-Known Member Premium Member

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    I'm toying with the idea of rolling my circa $300k super into an SMSF and then:
    • Use from $150k to $200k of the balance as deposit against an IP ( H&L Package ) at an LVR of 50% funded as P&I over 15 years. Alternatively the property would be near-new ( 1-2 years old ).
    • Diversify the remaining super funds in a number of ETFs
    Theory is that the IP will be paid off by the time I am ready to retire. Assuming I am into retirement mode by the time the IP loan is paid off, what are the tax implications if the IP is sold. After 15 years at 7% year on year growth, a $350k property will be worth circa $997k after 15 years. Although 7% average growth may be optimistic.

    An alternative approach to leveraging to buy property, is leveraging to buy shares that produce income through dividends, such as ETFs.

    I understand that the costs of setting up an SMSF can be quite expensive and there is the hassle of the ongoing administration ( which I would get my accountant to help me manage ).

    I would need to setup separate life insurance, although arguably this may not be essential as I am currently single. Can the life insurance premiums be funded out of the SMSF?

    What are the pros and cons of this type of strategy? What other approaches should I consider?

    Is an LVR of 50% too low?
    What levels of LVR are possible in an SMSF ?
    What is the typical and what is an accepted safe LVR in an SMSF ?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Up to 80% lvr possible. I would suggest you go higher lvr and put cash in an offset as you cannot increase a smsf loan.

    Cgt would be 10% if property sold or zero if u a drawing a pension
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Whilst I wouldn't use 7% or even 5% it certainly an option to do something like that in your SMSF.

    If the area has good gains you can look to sell before retirement and buy 2 properties or a better property.

    Many permutations.
     
  4. wombat777

    wombat777 Well-Known Member Premium Member

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    Can a single Limited Recourse Borrowing Arrangement (LRBA) under an SMSF be used to purchase a combination of assets, say a single property and a number of parcels of shares?

    Can an SMSF have multiple loans? E.g.
    Loan 1 to buy a number of parcels of shares
    Loan 2 to buy a property
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes.
     
  6. CosmicTrevor

    CosmicTrevor Well-Known Member

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    I thought an LRBA had to be for a single acquirable asset, thus I would have thought the answer to both questions is no.
    The way I understand it a LRBA could be used to buy a parcel of identical assets such as shares in one company, but it couldn't be used to buy a property and some shares or shares in more than one company.
    Thus what I think you can do is;
    LRBA 1: IP
    LRBA 2: Shares in company A
    LRBA 3: Shares in company B

    but not...

    LRBA 1: IP and Shares in company A
    LRBA 2: Shares in company A and Shares in company B

    Given the cost of setting up LRBAs it may not be sensible to borrow to buy Shares anyway. Seek specialist advice always.
    Trev
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes. a separate custodian trust will need to be set up for single acquireable asset. but the SMSF could acquire multiple assets held in separate trusts. Trev is correct.