Forum Replies Created
Tim
Your structure seems to be standard “instalment warrant” structure so all should be OK. Only warning is that although you have already been through NAB’s legal vetting process in the past it in no way means that you will get the same successful result again even using the same documentation as you have in the past.
As an example I know of one professional document provider that has done probably hundreds of bare trust documents for NAB on behalf of borrowers & their advisors but continually comes up against requests by NAB’s internal legal people to make further changes not withstanding that their documents have been successfully accepted previously.
My personal experience with NAB for SMSF loans is that there is from time to time no consistency with some of their processes.
Tim
You mention "outside SMSF" do you mean inside?
If your doing the same funding structure and same lender as your past SMSF purchase why not just copy what you have already paid for using the same bare trustee company/entity but changing items such as address/loan amount etc.
In NSW obtaining probate does not require a valuation of the assets for most simple estates and is done using an "estimated or known" value. Outside of the beneficiaries interests, the gross value of the overall assets within the estate is used by the government to calculate the lodgement fees payable.
The following is straight off the NSW Supreme Court Probate website……..
"The Court does not require formal valuations, but nevertheless a realistic estimate of value should be made by the executor. For other purposes, such as taxation, it may be necessary to have assets formally valued"
http://www.lawlink.nsw.gov.au/lawlink/supreme_court/ll_sc.nsf/pages/sco_probatefaqHi Grateful
My understanding on the issue is;
1/ You can use borrowings to repair and/or maintain the property but not improve or develop it. Borrowed money can also be used to pay expenses incurred in connection with purchasing the property and obtaining the loan such as establishment costs and stamp duty.
2/ The fund can use its own funds to improve/renovate the property as any other investor can but only if the property does not have a charge/mortgage over it. My understanding of why this is so is because if you used the SMSF’s own cash funds to improve or develop the mortgaged property the risks are increased as the improvements would then be held under the lenders charge/mortgage.
Mav wrote:Thanks Mike and number8, what is internal lending?As Birchcorp says internal lending may be easier for some people and is done when the members become their own banker and lends the SMSF the required funds.
SMSF Members loans are loans provided by members (or sometimes related parties) using their own funds or funds borrowed against own equity via nornal loan or LOC on a full recourse basis. The member would then make a limited-recourse loan to the fund.
The advantage of this arrangement is that the full-recourse bank loan to the member may be much easier to arrange (and less costly) than a SMSF loan directly from the bank to the fund trustee.
On the using of own funds some people prefer to provide this as a complying loan rather than make a contribution which may breach concessional contribution limits.Servicability is generally based upon a percentage (70%-80%) of the rental and SMSF contributions as well as other SMSF investment income if the fund is an existing fund and has other income generating assets.
In some cases (and dependent upon the lender) they may also look at the members own personal financial position however this is to see that there is no existing loan commitment issues there as well. Having said this this is mainly only when additional salary sacrifiice member contributions are required.
Hi Mav
Yes, do them all the time.
The St George SMSF loan requires a bare trust to be established.
To ensure that the loan has limited recourse to the SMSF's assets the SIS Act legislation requires that the asset is held within the bare trust which the banks call the security custodian trust.
This entity must be a company and have no other duties other than acting as a bare trust.
Establishing these is fairly simple however you will need to speak with your financial advisor who should be able to assist.
Also getting this part wrong can be costly as the bank will have its lawyers vett the instalment & security custodian deeds and if wrongly prepared will want them changed/amended. This is some instances can add to the overall cost greatly.
If you are planning on using an instalment warrent borrowing structure you need to exchange contracts in the name of the security custodian not in the name of the trustee as trustee of your SMSF.
A few things about the security custodian;
1/ it has to be a new company
2/ it has to be in existence (registered with ASIC) prior to entering into the contract.Also if your looking to borrow from a bank be careful as their SMSF products are not all the same and they will take some time to assess your application let alone approve and then settle.
Because of the above, make sure that you get as long a finance clause as you can before the contract goes unconditional.
In answer to your question….."do I sign"…..I wouldn't.
Qlds007 wrote:WWFEvery deal i have done with NAB here in Brissie they have asked for PG's.
Hi Richard – same here in Sydney PG’s always required. Another negative with NAB is that no mater how many times you provide the same Bare Trust documentation they still want to amend/change. Why…..because they can.
In fact one document provider now refuses to provide Instalment Warrant/Security Custodian deeds to prospective NAB SMSF borrowers because of this fact.
cjgs276 wrote:Hi, can anyone recommend a SMSF lender in Melb that don't require a Pers Guarantee.
Looking to buy prop via SMSF in Inverloch asap.
email at [email protected] if need be
The only lender not doing personal gtees that i know of will not do smsf for postcode 3996. Someone mentioned that Bendigo Bank may now be doing them without PG's but have not been able to confirm this.
Hi Natasha
Like Richard has said, there are no SMSF lenders that will do construction. Depending on how much cash your & your fund have one possible way is to fund the contruction yourself using available cash and have the SMSF borrow for the land.
Another problem you may face is now that you have signed a contract. What name did you purchase it in?
Reason for the above question is that if you are to purchase the property via a SMSF borrowing then it must be held via a "Bare Trust" arrangement with a corporate trustee and this trustee must have been incorporated before contracts are exchanged.
A word of caution with discretionary trusts……if the property is being negatively geared losses are trapped within the trust and can only be applied against future income derived by the trust.
drob1978 wrote:Hi,Wanting to get a general feel for whether it is at all possible to do the following
1. SMSF purchases land outright (no debt) or if necessary i purchase land with SMSF 50/50 initially
2. SMSF then goes 50/50 JV with me in building units or home or small residential whatever (small scale say 2 units but don't think that is relevenat at this stage) again with no debt
3. Say 2 units built they are owned approx 50/50 by SMSF and me
4. Can i say sell the one i own and then retain the other in the SMSF?Wanting to know if this is at all possible either in this or another format or would it be breaching in house asset rules etc.
Thanks in advance to any contributors
Hi, I'm no legal/tax expert but before you do anything I'd suggest you find one that really knows their stuff with regards the ins and outs of SMSFs particularly when they are involved in property development because this area is a minefield even for the experienced. However my understanding to your questions in general terms are;
1/ Yes
2/ Depends, possibly no.
3/ Yes
4/ YesThe above answers (particularly the 2nd) will also depend on things such as how your SMSF Trust Deed and Investment Strategy documents are worded and whether the ATO will see this as an SMSF running a property development business as this could possibly make your fund non-compliant (ie breaching the sole purpose test).
PLEASE note comments made should NOT be taken as specific taxation, financial, legal or investment advice. Please seek professional, specific advice.
MikeF
ak123 wrote:Hi, all,Just wanna hear some brutal and honest opinion on my situation.
I am banking with St George Bank, I have gone through most of the approval process. What I need to do now is to sign a contact and starts the valuation to get the final loan approval.
I have about 55,000 available for deposit. I am targeting a house with asking price of 520,000. I will pay the LMI and I am eligible for the FHB grant.
The house is relatively new (4 years old) and is located in the St George Area, Sydney.
I am the kind of FHB who are short of equity but have good income stream (120,000 pa.)
What worries me now is the bank valuation. In addition to the deposit I still have a saving of 20,000. The house we want to buy requires no additional reno or stuff.
I want to know, given my conditions, what is the chance that the bank will not lend me the full 90% of the house price? If so, what do you expect the gap maybe?
Thanks
hi AK123
Firstly do not sign anything until your bank has the valuation done and has unconditionally approved the loan. In todays environment its common for lenders valuations to come back short of agreed purchase price so best to be cautious.
At 90% and on income stated you should be fine so long as your deposit funds meet St George's genuine savings requirement and so if this is the case then the valuation is your only thing to worry about.
maree_bradross wrote:oh well that ends that – for the moment anywayMaybe I missed something, but you could always transfer your existing super balance into an SMSF. This transfer comes across as cash and therefore provides the deposit required.
Obviously you should seek proper advice and have a very good understanding of the costs both now and in the future let alone the risks.
A number of forum writers both here and on other forums have done this to buy property geared via their SMSF.
god_of_money wrote:Is it safer to loan it to medico?
Does any one know about the lending rates? Would it be lower than commercial loan?Obviously some lenders think its safer although with higher LVR's come higher interest rates eg 90% LVR on medico premises current variable rate would be 8.3%pa.
Hi Richard
Agree with you there, some mainstream lenders medico packages still exist (ANZ/Westpac etc) but most have been pulled back in the current economic cliamte however on a deal by deal basis there are still a few other players out there especially when medico's & SMSF is concerned.
Rates terms and conditons obviously apply however for some it's a viable option worth considering.
Mr M
There are potentially two ways in which to finance the purchase;
Assuming you have equity in your own name borrow the funds personally against your own assets and then on lend to your SMSF in terms of the instalment warrants lending legislation. The loan to the SMSF would have to be non-recourse and all interest would be deductible. Here the structure and documentation is very important and you should see an experienced accountant to ensure that it is done correctly.
Secondly the SMSF borrows directly and as Richard says the LVR is generally an issue however as a medico there is one lender that will do SMSF lending up to 90% for doctors if required. They also do up to 100% on home loans for doctors. Happy to provide details via email if you like.
Hi Joshua
Your correct with topping up rental income from salary sacrifice deductions. This can be done up to your concessional limit. At present this is $50,000 per member (or there is a transitional limit of $100,000 for people aged 50 or over at 1 July 2007 until 30 June 2012).
The cost of setting up an SMSF and ensuring that you comply with all of the requirements for Self Managed Super legislation does not generally come cheap. On top of this, and to enable you to borrow via an SMSF you'll also need to establish a seperate "Bare Trust" (with seperate trustee) which has to hold the property for the benefical ownership of the SMSF and it's members.
This last bit is required under the new SMSF rules which state that the lender can only have recourse to the asset being purchased and not to any other assets that the SMSF may have.
Pre-approval may be difficult without the SMSF being set up however a good broker should be able to give you a good indication whether a lender would come to the party or not.
On postcodes lenders at present are prefering to only do capital city/metro postcodes.
Hope this helps
Mike Feltscheer
Navigator Financial Solutions
Level 29, 31 Market St,
Sydney NSW
(P) 02 9263 2631 (F) 02 9263 2800 (M) 0401 992 641
