SMSF(E Super) Borrowing & private lending

After a long time sitting on the fence I'm looking at joining ESuper and starting a SMSF. Just wanted to see if anyone has used them before? Any pros and cons? I know they used to force you to use NAB and St George for SMSF loans but as the banks are packing up shop it seems to be open season to use whoever you like.

I've looked at La Trobe for a potential loan but wanted to have some back up options. Is there many private lenders that are still in the SMSF space?

 

We used to be with Esuper, and they were a little restricted in submitting and audit for the SMSF tax returns. We went to superhelp.com.au and they have been very good (for a no frills accountant).
Liberty seem to be the best at the moment for lending. 5.2% at 80% lvr but they do have extra charges ($30 per month fee and $600 fee for some audit).

 

Thanks @Perky29. I had a look the fees seem pretty similar but more flexible than Esuper. You've found the process smooth so far.

I did notice all of the SMSF loans have some hefty random charges. Is that $600 per year or just at the start of the loan?

 

I’ve used esuperfund for about 12 years. Have found them to be a very good and cheap service. There website has lots of useful information

 

Not sure if that $600 is per year, or up front yet.

 

NAB and STG dont do SMSF loans any more. No main stream bank does. Far from being "open season" its more a case of struggling to find a lender in what is now a closed shop. There is next to no competition in the space and refinancing options are very difficult. Just because a super fund can be setup it doesnt mean it should. The ATO are concerned with "single asset funds" and wrote to many last year cautioning about the practice and have put auditors on notice. SMSFs with borrowings will need to satisfy liquidity buffers, be neutrally not negatively geared and much more. 80% LVR is a mythical concept for most funds that lack other substantial assets. 50-60% is more typical. And then on top of the 40-50% deposit the fund will need to cover dutty, legals, lenders legal and boorrowing costs, bare trust setup and ASIC costs and still retain a surpus and have net contributiuons that leave the fund with cashflow. Many factors to consider including life insurance, can a SMSF receive employer contributions etc. Member guarantees also will apply. Annuals costs will be far higher than $600 pa and Esuper charge more than that for funds that own property.

Yes there are private lenders. Expect to pay huge fees and rates. Its the professional world of payday lenders. Dont even bother.

ESuper are an admin service that makes $$$ from selling services along the pathway. Take care. They used to tell people that setup of a SMSF was "free" but they were fined for saying that.
https://download.asic.gov.au/media/1322131/B774081 - Infringement Notice to Esuperfund Pty Ltd.pdf

 

From the Esuper website

Clients of ESUPERFUND are permitted to borrow invest in Australian Residential and Commercial Property. It is important to understand that when you borrow to buy property you must purchase the Property using a Bare Trust or Security Custodian Structure. Importantly ESUPERFUND attends to the entire setup process and loan establishment. This service is $500. In addition no additional fee is payable by clients who invest in Property with their SMSF, whether they borrow or not. Our annual fee remains at $999 per annum.

 

Esuper is ok, they are an online provider, however their fees are now circa $1000 with no personal service. I still cannot believe they and many others are offering free set up after the asic action. "Free" is for individual trustees and we would never set up a fund as an individual trustee. One thing you will notice about Esuper is their "independent" auditor is an ex employee - I don't like that. Try calling them....

There are heap of local operators around that price ($1000) and you can call them. They are a no advice model. My firm has to issue financial advice on the set up of an smsf whereas Esuper does not. Others include smsf warehouse which is one of the biggest operators - again no advice. I do agree advice is important, particularly relating to insurance as many mum and dads don't consider insurance and may lose that insurance with a "Full rollover". That can be a disaster particularly with those with pre-existing health conditions who may not be able to secure a new policy in the smsf.

Re loans - believe or not smsf lending is fairly strong at the moment - with the exception of us plebs in Victoria.

The space is all non bank with La Trobe, Liberty dominating the market and others such as mortgage managers who do offer a offset. Rates up to 65% can be sub 5% with an offset. Most of the loans we do we keep to 65% LVR as its more expensive over 65% - same applies with La trobe.

SMSF loans are doing well and many many more will be buying in the next 12 months as SMSFs are fairly cashed up.

Cheers Ivan

 

Same here. Many of these are also one stop shops that have to upsell and peddle to make a quid. "No advice" but they seem happy to steer and guide and then its not advice. I believe the only fix is to regulate SMSF admin as a tax agent service. A newsagent has more regulatory oversight than an admin service.

I question where the data is handled too. To get that price point means offshore whether they tell you or not. The data available to admin staff is high risk.

Yes SMSF lending is up but the quality and calibre of the borrowers isnt as strong as it once was. Too many are jumping in because you can. We find its often not even someone we can issue a SOA for. Often very uneducated about super too yet the fund is setup. Or they get 90% down the road and find they did it on the cheap and the lender wants them to get financial advice etc. We wont touch it. They all are surprised when we indicate the cost. I'm wondering who they send them to.....More friends of friends who just print a page and sign it ?

 

Thanks for the advice everybody. I've been looking at doing it for a while(5 years) so think I just need to bite the bullet and have a shot at it.

This is something I'll run past an accountant once I finalise how I'll set it up. I'm considering doing a loan for a IP at 60LVR(Mainstream lender) and another smaller loan after that at 50LVR but with a family member loaning me the remaining 50% matching the interest rate I would pay with a lender. Is this possible as it will still be on the books and the interest rate is what I would be paying or is this considered a conflict of interest?

 

Two loans from different lenders for the one property?. Wont usually be permitted. You said "after that"....what is the 50% LVR loan for ?

 

Hi sorry I meant get the first loan with say Liberty at 60%LVR. Than afterwards put 50% of remaining funds towards a second property and have the other 50% borrowed from a family member with them charging me a market value interest rate.

 

The rules surrounding a related party loans are highly technical and more complex that a non-bank lender. You should seek guidance and advice. Legal advice is also wise and would be needed for aspects of both borrowing arrangements. The legal advice should also address what may occur if the related party was to die. It may result in a problem for the fund.

 

Good thinking. Didn't even think of those consequences. Will keep everyone updated with my journey

 

Ivan do you have many of the mortgage managers allowing under 100k with offset? Looking at a purchase with the 65 LVR when I finally get of my butt and get it set up. With such a low loan value I'd be happy to pay the lender or broker a service fee to get it across the line.

 

Crypto - doubt it.

 

Anything between 100k to 150k would be alright though?

 

Actually I checked, min loan is $50k .... but the amount of work involved in a loan app - its just too small for most brokers to assist - at least me. Also the costs for app and legal fees are fixed, I would look at a related party loan for something so small.

 

If its for crypto its not a matter to be considering a loan for unless you plan to buy ONE holding type of coin. You cant mix different coins without each being in a different trust and certainly cant trade them or conduct any of the things common to coins such as arbitrage and currency pairing and many more. And its arguable that one position only is allowed as each has a different cost basis or exchange basis. Legal advice on what is a single acquirable asset is required and be clearly understood how it affects the investment choices you propose. It could be a audit killer too as verification and audit trails arent as open and verifiable as a auditor will require.

If I was presented with a crypto borrowing I would want to see the fund investment strategy and risk mangement statement to initiate any further advice. Professional support may be hard to come by (or be grossly insufficient). Add levegage into that too.

The costs for the bare trust and the limits surrounding crypto as a smsf investmnet may all impact being suitable before even considering loan availablility and cost.