Setting up an SMSF

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 ?

 

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

 

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.

 

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

 

Yes.

 

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

 

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.

 

Me and my wife want to join our supers ans set smsf so i have been reading about it and came across the following from ATO:-
It costs money to set up and run an SMSF. You might find that the fees you pay for an SMSF are more than you would pay in another type of super fund. Every year that you have an SMSF you'll need to pay for an independent audit and the supervisory levy. Most SMSFs also pay for additional help, such as:

• preparing the SMSF annual return
• valuations of the SMSF's assets
• actuarial certificates for SMSFs paying income streams (pensions)
• financial advice
• legal fees, for example if the trust deed needs to be amended
• assistance with fund administration
• insurance for members

I just want rough idea on how much does it costs per annum -hope to see ime numbers!

 

Or indeed less than you'd pay in another type of super fund.

Yes. Deem this to be in lieu of paying admin fees for a retail super fund.

again, in lieu of paying admin fees for a retail super fund

Appraisals are acceptable and generally offered for free (eg by the sales division of the real estate agency managing a rental property). Not sure why you'd pay for a valuation if appraisal is acceptable to audit.

If paying for "assistance with fund administration", be clear on what the assistance comprises of. Are your helpers merely downloading the bank statements from internet banking for you and notifying you that your annual ASIC invoice is payable?

Insurance premiums come out of regular retail super anyway, however most folks don't realise this because they do not read their statements.

 

Yes, and setup costs vary enormously between providers. Choose wisely.

 

one thing for sure is the interest rate is at least 1% higher

 

Thanks @JacM and @RetireRich101 for your input.

I got that infi from ATO-so it appears that it is very vague .

After setting up smsf we are looking to purchase a block of land in tarneit or meltin area. any recommendations on the providers...at this stage we may not tske any loan.

Thanks in advance

 

I am different to some (or most ?) on PC.

I would never buy property in a SMSF, especially one with a relatively small balance and especially a block of land.

I would buy property outside of a SMSF. I would only have shares and cash in an SMSF.

Each to their own.

 

Ah, I thought I was the only one here with that view. I've seen friends advised to buy IPs in their SMSF who are regretting it especially with the new changes coming in. Most are now in Pension mode and finding liquidity to pay the minimum pension and IP repairs / costs etc a serious problem. When it comes to the legislative nightmare which is Super my motto is to keep it as simple as possible. Also keeps admin costs low.

 

A SMSF can only borrow to acquire a single acquirable asset. So it cannot borrow to build on vacant land.

 

There are many reasons why I wouldn't but liquidity is one of major ones.

Our SMSF is pension phase and we keep up to 3 years' pension in cash investments so that we don't have to sell in a fire sale (owning shares makes this easier to do).

This equates to 12% of the fund balance in cash, soon to go up to 15%. Admin expenses are on top of this.

 

Hi @Terry_w , thanks for the input but we are not looking to take the loan for initial land purchase.

 

The SMSF couldnt borrow to build either.

 

Yes @Terry_w, you are right that's why we just want to allocate some portion of our super to buy some land as a long term strategy to hold and sell after few years.

 

That's a strategy I guess. I'd suggest checking with the land developer as most blocks in tarneit have a requirement/covenants to build within 12 months. It's also difficult to judge the capital growth in new estates as there isn't much 'resale' turnover, especially of vacant land. Everyone can see how developers increase asking prices, but a lot of the later releases involve discounts and rebates that aren't disclosed.

I think you'd be better off buying a property that has a rental income, even if it means a small loan for your smsf.