SMSF, $150K. No idea where to look

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Adzza, 4th Apr, 2017.

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  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    At best.... In reality many find 60%+
     
  2. Knights of Ni

    Knights of Ni Well-Known Member

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    OK, thanks.... I may have misunderstood, but I thought you said you repaid your loans? Where did you get the money to repay the loans? Surely if you had to use cash to repay the loans then that cash is gone (to pay down the debt) ... whereas in the other strategy, you don't repay the loans? so strategy 1 has used far less capital....still confused?
     
  3. euro73

    euro73 Well-Known Member Business Member

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    I'm not at all confused..... :) You repay the loans using the SURPLUS CASHFLOW generated by the cash cow properties . You do not have to put in extra capital of your own...ever.

    This is the beauty of such a model. The asset ( property ) you buy not only costs you ZERO to hold, it also generates enough EXTRA income for you to pay off the asset ... leaving you with the asset + none of the debt + all of the maturing rental income.... all at extremely tax effective levels.

    What I have just described is pretty much excatly like using a margin loan to leverage into high yielding shares, and then dividend reinvesting the profits until the margin loan was paid off in full, leaving you with a large asset base generating a large tax effective income.... except you can leverage with resi lending instead of margin lending, and at lower rates, and using a far less volatile asset base ie property rather than shares ... and your lending is not at call.

    Far from confused ;)
     
    Last edited: 17th May, 2017
  4. MorganHB

    MorganHB Well-Known Member

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    @Knights of Ni, I'd be going with something thats super vanilla. ie in a good location (upside for growth), cashflow is ok...if you can buy well, thats a bonus. Definitely don't go for anything risky like a mining town ppty ;).
    I think St. George can help with lending based on what you've accumulated. I know CBA only look at resi pptys where the net assets are $200K in the SMSF, the loan is more than $200K and the Interest Coverage Ratio is more than 1.25x (I work at CBA btw)....Not sure about other financiers as ANZ and NAB no longer operate in SMSF Lending...
    Hope this helps matey.
     
  5. euro73

    euro73 Well-Known Member Business Member

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    ST G is widely considered the "best" SMSF resi product, as they offer an offset and allow new dwellings. Their max LVR is 70% , so while there are other funders offering higher LVR's for SMSF products, they dont offer I/O + offset + new dwellings, so it's why I model SMSF cash flows at 70% LVR.
     
  6. larrylarry

    larrylarry Well-Known Member

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    I would also only considered SMSF last.
     
  7. euro73

    euro73 Well-Known Member Business Member

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    Agree with @larrylarry completely. Entering into a Limited Recourse Borrowing Arrangement (an SMSF loan) requires that you sign a personal guarantee , which impacts adversely on your personal borrowing capacity. This is because the SMSF debt is counted against your personal liabilities when you next try to borrow in your personal name - why? Because you are a guarantor to the SMSF loan. But the income from rent, and any neg gearing benefits, are not credited to you, as the debt belongs to your trust/SMSF, not you. So it has a net adverse effect

    Always best to try and accumulate your personal portfolio first. ie buy what you can in your personal name, and exhaust your options there first, before commencing with SMSF purchases. Because doing things the other way around will snooker your personal capacity far sooner.

    With my clients, particularly those with PPOR non deductible debt, we focus on accumulating as many cash cows as possible ( NRAS approved dwellings previously, but now dual occupancy dwellings) in their personal names first, so they have built a structure that will pay their PPOR off rapidly... and only then do we look at SMSF options.

    The idea is to treat PPOR debt reduction as Phase 1. Use whatever available equity and borrowing capacity they have to accumulate cash cows that pay off PPOR debt first, and later some of the INV debt, and set the foundation for a passive income in their personal names. In other words, a dividend reinvestment plan using resi property.

    Then, when Phase 1 is fully established and up and running, Phase 2 is to do the same thing using SMSF. ie purchase a cash cow and set about paying down that debt as rapidly as possible. But this is always done after the personal portfolio is established and that strategy ( Phase 1 ) is complete. If we were to look at SMSF first, we would severely limit what they could do in their personal names, because of the negative impact we would have placed on their personal borrowing capacity. They would achieve a smaller personal portfolio , and their ability to pay off their PPOR would be compromised . They'd still make inroads, but it would be slower because they'd have been able to acquire fewer cash cows.

    The other, longer term benefit to this approach is that it creates an opportunity for Phase 3 in the years ahead, where additional personal capacity becomes available again because of the reduction in PPOR debt that has occurred by that time, and the reduction in SMSF debt that has occurred by that time.

    Dividend Reinvestment /deleveraging - and the magic of compound and time, reaping strong results .
     
    Last edited: 18th May, 2017
    larrylarry likes this.

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