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For many clients, trying to obtain finance for their SMSF is very stressful. So it is important for them to be well educated even before starting the process.
Here is what I tell my clients when the topic comes up.
Structure
Having the correct legal structure from the beginning will save emotional and financial stress. You should always speak with a specialised accountant, financial planner or lawyer. The different structures of a SMSF give the lenders different levels of security; this is one of the many variables that determine how much the lender will fund. The safer the structure, the more comfortable the lender will be to fund up to 80 per cent LVR.
Pre-application: borrowing capacity
You need to know the borrowing capacity of your SMSF before you can work out what price range your property should fall into. Get this right from the beginning and don’t work on (your own) estimates.
Application: pre-approval
Once the lender has been determined we need to obtain a pre-approval. This will avoid surprises after the property is purchased.
Application: formal approval
Once you’ve bought the property, you’ll need to provide the lender with a contract of sale and a rental appraisal/rental agreement. The lender now has all the information it needs to assess the loan. If the verdict is positive, the documents will be assessed by their lawyers to make sure the application complies with the superannuation laws. This will take at least a week, but could blow out to several weeks if the lawyers find that mistakes were made in the preparation phase. Once the lawyers are happy, the lender will issue formal approval.
Loan contracts
The lender will now draft the loan contracts for you to sign. These documents are far more extensive than with personal home loans. The paperwork needs to be signed and witnessed by a solicitor, who will have to confirm that he gave legal advice regarding the loan application and the contract you are entering into with the lender. The documents will then be sent to the bank’s lawyers for a final check.
Settlement
The next step is for the lender to make the funds available and for a settlement date to be agreed between your solicitor and the vendor’s solicitor.
Important tips
- Always seek professional help
- Don’t buy a property before assessing borrowing capacity
- Always add an ‘extended settlement clause’ in the contract of sale; 30 to 60 days or more would be preferable
- Be well prepared in terms of what documentation is required and make sure that it is available
Niche, not a nightmare
Purchasing an investment property through your SMSF is an excellent way to prepare for retirement, if done under the right circumstances. Please be advised that seeking professional help is probably the most important decision you will need to make, as this ensures that you make the right decisions.
For many clients, trying to obtain finance for their SMSF is very stressful. So it is important for them to be well educated even before starting the process.
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Here is what I tell my clients when the topic comes up.
Structure
Having the correct legal structure from the beginning will save emotional and financial stress. You should always speak with a specialised accountant, financial planner or lawyer. The different structures of a SMSF give the lenders different levels of security; this is one of the many variables that determine how much the lender will fund. The safer the structure, the more comfortable the lender will be to fund up to 80 per cent LVR.
Pre-application: borrowing capacity
You need to know the borrowing capacity of your SMSF before you can work out what price range your property should fall into. Get this right from the beginning and don’t work on (your own) estimates.
Application: pre-approval
Once the lender has been determined we need to obtain a pre-approval. This will avoid surprises after the property is purchased.
Application: formal approval
Once you’ve bought the property, you’ll need to provide the lender with a contract of sale and a rental appraisal/rental agreement. The lender now has all the information it needs to assess the loan. If the verdict is positive, the documents will be assessed by their lawyers to make sure the application complies with the superannuation laws. This will take at least a week, but could blow out to several weeks if the lawyers find that mistakes were made in the preparation phase. Once the lawyers are happy, the lender will issue formal approval.
Loan contracts
The lender will now draft the loan contracts for you to sign. These documents are far more extensive than with personal home loans. The paperwork needs to be signed and witnessed by a solicitor, who will have to confirm that he gave legal advice regarding the loan application and the contract you are entering into with the lender. The documents will then be sent to the bank’s lawyers for a final check.
Settlement
The next step is for the lender to make the funds available and for a settlement date to be agreed between your solicitor and the vendor’s solicitor.
Important tips
- Always seek professional help
- Don’t buy a property before assessing borrowing capacity
- Always add an ‘extended settlement clause’ in the contract of sale; 30 to 60 days or more would be preferable
- Be well prepared in terms of what documentation is required and make sure that it is available
Niche, not a nightmare
Purchasing an investment property through your SMSF is an excellent way to prepare for retirement, if done under the right circumstances. Please be advised that seeking professional help is probably the most important decision you will need to make, as this ensures that you make the right decisions.
