SMSF worthwhile at what $ point ?

Hi there - they changed it late last year down to 70%

Home loans, super fund loan | Bank of Melbourne

Loan to Value Ratio

• Up to 70% where SMSF trustee is an individual or a company"

Only 80% lenders are Macquarie, CBA & Resimac and La Trobe....

 

Same here for my shed. $93,000 net rent plus employer contributions plus extra contributions off a $595,000 loan P&I lowering the loan considerably. $1million asset paid off in 10 years plus $150,000ish income p/a will be a nice healthy earner for our SMSF.

pinkboy

 

I am not sure about residential property, but for medical practice/centre/commercial property BOQ specialist offers a niche market

Commerical Property & Investment Loans | BOQ Specialist

 

You are right Ivan, it is 30% our broker clarified this morning. Thank you for bringing this up much appreciated.

On a side note for some bizarre reason St George sent our loan documents to a totally random address in Maroubra. We've been waiting on them as we have an appointment Monday afternoon with our solicitor to go through them.

 

Mate - Re the loan documents - you would want to get to the bottom of this - either your broker or yourself - you donot want your loan docs going to random addresses for the obvious reasons and its a major stuff up by the bank that they should explain! also if that delays settlement make them pay the interest. Sorry to hear about that.

Cheers Ivan

 

BOQ Specialist is a wierd one, I have not used them as they don't deal with brokers, however I can tell you they have stuffed up a few loans based on the funds that I have been auditing. Their systems are rubbish.

Cheers Ivan

 

I've been told that because people have to give a personal guarantee on a loan within a SMSF, the loan counts against you for serviceability, but income from the asset does not count for you. Can anyone comment on this?

 

Sounds right

 

Yes, BOQ specialist is weird and always wants to X-collaterise all the loans; but commercial loan with rate of 3.6X% is unheard of though.

 

I've been told different stories from different lenders. ANZ yes it counts, but according to the lender at IMB it doesn't. I'm a bit over the SMSF purchase before we've even settled to be honest.

For starters nobody explained that we had to go guarantor on this purchase, if I had known I would have told them to shove it. My broker initially said we didn't then said we did after he made enquiries. It's a bit late now that we are 2 weeks from settlement. Then my broker didn't get the memo that St George required a 30% deposit instead of a 20%. Was kind of hoping to have a bit of a better buffer in the SMSF. Its too late in the piece to change banks.

I will reassess this purchase after a year and if it's not working it I'll sell the house and keep property out of my SMSF.

 

With SMSF loans they take much longer than normal and more issues pop up along the way so I think it is very important to get the ball rolling by getting a pre-approval in your hands before the trustee enters any contracts.

 

We got pre approval before we started looking seriously for a property with St George. Overall it's gone smoothly apart from the above issues but I think next time I'll be more diligent and check everything myself. If it wasn't for this forum I wouldn't of known half the things I've learnt about property investment, such a wonderful resource with great contributors.

 

Hi there - your broker should give you a heads up on how guarantor works at the outset, and a lawyer would have signed a certificate for you. Surely they should know that St George max LVR is 70% as its been the case for a year. Re ANZ, they don't do SMSF loans for Resi. The buffer point should be in your funding position at the outset and generally you are required to have 10% of the purchase price in the SMSF left at settlement, and a good property will generally have rent covering interest and perhaps net expenses.

SMSF purchases are generally fun, i'm sorry to hear yours has been messy.

Cheers Ivan

 

Hi Ivan,

We are signing the loan documents on Monday so yes the solicitor will sign the certificate. No I wasn't told until later on about the gauantee a few weeks after I asked. I can't explain why he didn't know about St George but if there is a next time I'll be double checking everything myself.

The 10% liquidity apparently we didn't need. Something to do with our contributions being over 1.2% meant that we weren't required to have the extra liquidity. If we did we wouldn't of been approved as we don't have it.

Re the ANZ comment, that was in relation to a normal investment loan I enquired about with them not an SMSF. They advised that the SMSF will count in the serviceability of a new loan whereas IMB said it would not.

The experience was not entirely what I thought it would be and like I said I will review in a year to see how it's working out.

We purchased an older house, structurally ok but cosmetically needs a bit of work. It's on a main road but central location in Penrith, across from Masters, staggering distance to Panthers and the river. It's currently zoned R3 and a good size block, we were hoping a long term hold meant it will be zoned to R4 which would increase its value. The tenant has been there a while and wants to stay on. We will see how it goes.

Thanks for your advice, much appreciated.

 

This has been the case for quite some time. I note other comments here as well where brokers didnt know this. It on serves to demonstrate that those brokers arent up to speed. You should deal with specialist SMSF loan writers , not generic brokers, when considering a limited recourse borrowing arrangement.

Let me assure you, as a BDM for over a decade- far, far, far too many brokers - even some who make a lot of money - are pretty average at best doing any loan that isnt a simple non major bank loan. When you start getting more sophisticated loan structures for multiple property investors, they can work their way through it but they arent exactly "expert" at it... so when it comes to LRBA's, you have to understand the majority of brokers are completely out of their depth and knowledge zone. Very few SMSF loans are actually written. It's a complete myth that its a big sector. Its quite niche, still- 9 years after the SIS act amendments. In my experience - which is vast - many dont even know the basics RE LVR, liquidity requirements etc, when asked - simply because they may never have done one... as I said its a very small, niche market.

There are several skilled brokers on these forums. Best to use one of them if in doubt

 

Funders require PG's for LRBA's - personal guarantees. That is that. I tell all my clients to exhaust their capacity / complete their accumulation outside super BEFORE commencing purchases inside super.
It's all about the order in which you do things. leave super until last, or you will snooker yourself. In other words- get all your personal purchases out of the way before you start buying through your SMSF.

Servicing calculator nuances dictate this. Only really high income earners or those who have very mature personal property portfolios yielding 10% + are immune from this little trap.

Now send me a bottle of red- I just gave you the best advice you'll ever get

 

Its possible to buy 1 x CIP to fund your retirement (not that I will be relying on income from this source alone) via an SMSF and something Im working towards. Will opetate my biz from there and sublet the rest.

St George Flame Brokers (Im one) can get loan docs emailed within 24 hours post approval. Its a safer method IMO.

I had NAB send docs to the previous broker that did the original deal and to add to the awkwardness the broker was a personal friend of my client who wanted to use me instead.

 

I had st g reissue documents 3 times because they kept spelling the trustee company incorrectly - this added about a week to it.

 

This is gold. Thanks @euro73!

 

Its actually really simple. if new/young investors would only stop over analysing everything and just use logic - especially in this new credit era

Firstly - understand what you want to achieve. My goal was to achieve 5 things. Minimise taxable incometo lowest level possible . Maximise after tax income to highest level possible . pay off PPOR using that income. build multi property portfolio using that income and the equity from my paid off PPOR . end up with passive income without having to sell. You see - this plan was specifically designed to allow me to retire even if capital growth stopped everywhere for 10 years. It's why NRAS is so clever as a strategy.

here is how I do it for every client.

1. revalue every property with current lender and also revalue with good cash out lenders such as AMP, ANZ, STG, Macquarie. Identify exactly how much equity you have to work with. get the equity/cash out done first. Always. Non negotiable. No properties can be purchased until this step is completed. Why? because this process is whats going to determine what deposits + closing costs you have at your disposal, and it determines what you can afford to do.

2. map out a borrowing plan. Find out what the absolute maximum number of properties possible is, and the maximum price points this plan can work at. Let's say you have 500K equity available. That might be used as 5 x 100K deposits to buy 5 x 400K NRAS properties at 80% LVR, or it might be used as 3 x 500K properties at 90% LVR and 2 x 350K properties at 80% LVR, etc etc etc. How it is used is up to each investor. But I show them what they are ABLE to do. I do not recommend what they SHOULD do. That decision is theirs.

3. Buy . But do so only after you understand the tax implications/mortgage reduction implications/ borrowing capacity implications. Here's what I mean. Each NRAS property generates @ 16-17K of deductible losses, so 5 properties is more than enough to create @ 80-85K of deductible losses. For someone earning 100K , this means their assessable taxable income drops to @ 20K or below - which is pretty much the tax free threshold. For someone on 60K, 3 NRAS properties would get their taxabke income below the threshold. For someone on 200K, it might require 10 or 11 NRAS properties .

Now , a 100K client may get quite excited by the prospect of paying little or no tax, and earning enough money to pay their PPOR off in less than 10 years, and want to rush out and purchase 5 x 600K NRAS properties, but its not quite that simple, because they might have enough money to fund 5 x 12% deposits + stamp duty , the other consideration is of course borrowing capacity. Someone on 100K , with a PPOR mortgage and an additional 500K equity drawn down, is unlikely to be able to find funding for 5 x 600K properties at 90% LVR. So the whole thing has to be looked at from all sides...

So I always complete this process first.... because it determines the plan. more often than not, I will recommend cheaper properties rather than dearer ones, simply because of borrowing constraints - this way tclients can still get their taxable income down to zero ( or as close to it as possible ) and get the after tax income up to its maximum possible level, and get their PPOR paid off as fast as possible - which is the aim of the whole game - but use less debt to do so....

yes, sometimes that means buying properties that may show less growth , but the purpose of the purchase is debt reduction, not equity creation. Equity doesnt improve borrowing power . So under my plan, with or without growth they will have built a very strong foundation for a very wealthy future because their PPOR will be paid down is less than 10 years. This is when they get to separate themselves from most investors, who are burdened by PPOR debt for 25-30 years. They will then have loads of equity ( from the PPOR being debt free ) and loads of borrowing power ( from the PPOR debt not being assessed against their liabilities) so they are in a position to purchase multiple "high growth" properties then - even ones that have weak as water cash flow, because their main mortgage will be gone and their "working dogs" - which is what I call inexpensive NRAS properties, will pay for, or carry, their "growth dogs"

Now people think this all sounds great but there must be a catch... to them I say - there isnt. NRAS is a tax credit. There are no tricks. If you arent convinced. Ask around. Ask PC members who own them, and who have started seeing huge ATO and NRAS cheques hitting their accounts last year, this year - and decide for yourself

Ultimately, as I have said over and over - this is very very simple - it's a dividend reinvestment plan using property instead of shares, and using long term high LVR lending instead of low LVR at call margin lending.

Simply draw down dormant equity. Set a budget and purchase plan and deploy the equity into extremely tax effective, high yielding assets (NRAS properties) which generate double digit fully franked dividends ( tax free CF+ surpluses) and reinvest them (pay down your PPOR)


4. once your personal capacity has been maximised... your taxable income minimised, your mortgage reduction plan is in place - then , and only then, should you start looking at superannuation and other things.... but thats a story for another day, other than to say - never ever NEVER ,start buying in your SMSF until you have built your personal portfolio. Dont get caught by the Personal Guarantee Trap.

if you follow a simple plan like this, with or without growth you will pay off your home , have a high yielding portfolio and end up with a passive income for retirement. It is the only resi property plan that can get you there without luck or a credit boom. Scroll back to my 2nd paragraph and remember what I said my plan was..

Maximise after tax income to highest level possible .
Pay off PPOR using that income.
Build multi property portfolio using that income and the equity from my paid off PPOR . End up with passive income without having to sell.