Some years ago the major banks decided to withdraw from the Self-Managed Super Fund (SMSF) lending space. However, there is still strong demand for loan products within this area of lending and in conjunction with other forms of investment, can make a good mix for those transitioning to retirement. It’s not exclusively for that type of client as these loan products also assist business and personal clients alike, at all age positions.
Where individuals have accrued a healthy balance in their superannuation funds they may choose to invest some of these monies direct into property. That can be commercial or residential property, generally where it’s already established and has a rental income in place. Here are some of the key points and features of SMSF lending:-
A deposit of 20% plus buy in costs is generally required to invest in residential property, and 30% in commercial property. This is a guideline position.
They are referred to as ‘limited recourse loans’ because a lender assesses the loan repayments solely based on the rental income of the property and the applicants proven historical super contributions. A loan has to stand alone on this basis. There are strict laws surrounding lending to super funds.
Both fixed and variable rate loans are available, and repayable by interest only or principal and interest instalments.
30 year loan terms are available.
A loan redraw can come with some lender products.
A loan offset facility can come with some lender products, which maximises the use of super reserves held in associated cash accounts. This reduces the loan faster and builds equity quicker in the associated asset.
The owner of the asset (property) is a separate trust, generally with an incorporated trustee entity. The super fund with it’s own incorporated entity as trustee, is the borrower. Once again this maintains the arm’s length position retaining that ‘limited recourse’ requirement mentioned above.
Always refer to your accountant for information in how to establish the various entities when looking to set up an SMSF lending facility.
Contact Michael at COMPASS for further details on SMSF loan facilities , interest rates etc. Phone 02 6583 2211