Hi, what I meant was draw on existing equity to fully pay for the property but obviously can't claim the interest which probably means it's not worth doing. In some circumstance, like in mine recently where devts. partially sold can still motor along on the original borrowings but the profits realised can be fully invested in a super fund, in which case one can really choose what to buy. The interest on the original borrowings would still be tax deductible.
Is this scenario correct Richard? Home fully paid up, worth $750000 LVR 80% = $600000
Buy house total cost $600000 in super fund. All rental goes into fund paying 15% tax
Interest paid from personal income is fully tax deductible @ personal tax bracket.Someone aged 55 can draw a pension from the rental & claim 15% rebate thereby paying no tax.
Sounds like a nightmare.
KYI dont thinkyou can draw on existing equity, as really this equity is not cash or unencumbered, and can be called in by the bank. It has to be hard cold cash in super fund with no debts or liability call in on it. This is my understanding and I bought a block of land with my super fund, and had to ensure there was enough there to cover all costs, stamps, legals, holding costs etc, and i could not draw equity elsewhere and put it to the super fund, as this still was a registered debt elsewhere on the balance sheet.
Seek specialist advice
KYL
Irrespective of whether you claim the interest or not you cannot draw down funds from personal equity or cash and buy a property in your SMSF name.
As i mentioned you are legally allowed to borrow in your SMSF as long as the type of security is an acceptable class.
Not vacant land.Richard Taylor | Australia's leading private lender
I have bought land with my super fund to subdivide, it was with my super fund $$$ in my SMSF, there was no borrowings, equity from anywhere, it was funds already in my SMSF, as I am a company owner and pay quite a bit to my SMSF yearly. Now I am using my SMSF to invest strongly for when I wish to take down my shingle and travel about before I get too old. Im 36 now, and prob will semi retire by 40, travel, do charity work, and do property things a few days per week. Not sure on how it works if you wish to retire early??
Advice I have been given is you can buy residential, commercial, industrial with your super fund if your super fund has the $$$ in it.
Has anyone retired early or part retired early? Do I have to wait til Im 65 ? to retire???
I fully retired at 39 but after 8 months of travelling, watching kids sportfing activities etc went back to work running my own financial planning company with a view to helping others reach what i had achieved.
You can retire any time but cannot draw out your SMSF until aged 55.
In the meantime you have to live of your personal asset income such as dividends, rents etc
Richard Taylor | Australia's leading private lender
Does anyone know if it would be possible for my SMSF to purchase a residential property and then rent it to my wife? Does the rental need to be a fair market rent?
Does anyone know if it would be possible for my SMSF to purchase a residential property and then rent it to my wife? Does the rental need to be a fair market rent?
Hi Holly
No unfortunately this would breach the SISA legislation.
Richard Taylor | Australia's leading private lender
Hi, I am sincerely puzzled.
Why can't I borrow $500000 and buy a house & place it in SMSF if I have the equity?
Say I have an unencumbered property, a house. I can get a bank to lend me $500000 which is the upper limit of what I can place in SMSF.
I place the funds in the SMSF as cash.
Then the SMSF buys a house to the tune of $495000. It rents for whatever & I report that as SMSF income.
Meantime, I pay off the loan with income that's outside the fund.
I don't think it's worth doing, just that it's theoretically possible.
KY
Dear Property Investors
1) First of all thanks to Terryw for mentioning my website http://www.trustdeed.com.au above. Articles on SMSF borrowing are written by me since Sept 07, for those who have not read them – please visit the website and click on "previous newsletters".
2) I do not understand why a person should purchase an investment property outside of super – if property is purchased in super, you
– pay lower capital gain tax and if you sell in pension phase – no tax
– super funds can borrow, which means that you can salary sacrifice and pay no tax on the salary which is sacrificed as there will be a loss in the smsf due to borrowing
– access super in case financial hardship or in case any temporary disablement or permanant disablement or terminal illness if you are under your preservation age3) any negative gearing after the tax refund is paid by after tax dollars – once it is grossed up – any benefit of the tax refund is lost
Hence which one is better "Salary Sacrifice" or "Negative Gearing" – i think salary sacrifice in super and then pay off the loan of smsf without paying any tax – do that till you reach 55 – then commence a transition to retirement pension and retire when you are 60.
To be rich is easy..
If you are on good income (say $80K each) – pay only interest to the bank on your own home – if you have equity on own home loan – pay nothing to the bank – home loan will be paid by line of credit = reduce your income by salary sacrifice to $34K and salary sacrifice the remaining income to smsf – purchase property with borrowing in super (i can show you how – with costs of less than $1,000 from our website) – if you contribute $50K each H&W – you should have $100k going in super each year wih nil tax – all you have to do is repeat it for 10 years – then rule of 72 – money doubles every 7 years! you are basically done ! Believe me $2M in current climate is enough to live on for ever – you can live on the fruit, whilst the tree can be passed on to the next generation.
I am organizing a seminar in April 09 at parramatta RSL where i show how a 50 year old can pay interest of only 3% on own home loan and how smsf can borrow – entry is $55 – but for those who register for e-newsletter on our website – it is free!
Have fun! and start selling all properties you own outside of super
(standard disclaimer applies – the above is not advice)
manoj abichandani
Registered Tax Agent, Licenced Real Estate Agent
SMSF Specialist Advisor(TM)
SMSF Specialist Auditor(TM)
of http://www.spaa.asn.au
technical director http://www.trustdeed.com.au
For god sake it is "bare" trust and not a 'bear" trust
Manoj Abichandani
Firstly thank you to Manoj for correcting our speling (lol) of Bare Trust.
I do not understand why a person should purchase an investment property outside of super
Maybe one reaon could be the fact that you can only borrow upto circa 72-75% lvr inside Super.I have done about 9 of these deals to date and non of them have sailed through without 101 issues from the lenders.
i get numerous deals a week from clients and the LVR issue and set up costs all seem to be the main stumbling block.Of course other factors such as Land tax etc and serviceability all have a part to play.
Richard Taylor | Australia's leading private lender
Richard
I highly respect your experience in smsf borrowing. I know there are limited number of lenders – however now CBA has come to play and i am also aware that rate of interest is higher in smsf lending. However, once you do a cost benefit analysis of borrowing in super – it is a better option.
I am aware that LVR is only 70% and outside of super you can use equity of your own home to borrow.
Now i am perhaps new thinking – you should not use "income" to run your kitchen – because over $34K of income the cost is 31.5% which means that if you are going to a restaurant to eat – you have to earn $146 then pay $46 (31.5% ) tax and then pay $100 for dinner – the same thing goes for paying off interest on home loan – you see it is NOT tax deductible – hence what i suggest is very simple and only some can understand. My strategy is – use the equity in own home to run your kitchen and pay the home loan (line of credit will pay home loan) then all you income is free to salary sacrifice – where all your assets will be built – obviously this strategy will only help someone a) who has equity b) who is about 50 years old. Well then, perhaps i am only talking to only those who are 50 – they will usually have equity in their own home and they should pay no tax – all their income should be used to purchase property – but in super – not outside of super – once they are 60 and retired – they can take the money out of super and pay off the line of credit and the home loan – please do your sums and tell me if i am wrong – if you still think i am wrong or do not understand – please come to my seminar – and YES the seminar is free if you subscibe to my newsletter on the website.
Manoj Abichandani
SMSF Specialist Advisor
http://www.trustdeed.com.auManoj
Oh dont get me wrong i agree with what you say and have 6 properties in my SMSF unfortunately only 1 of them geared.
Even with CBA joining the flock the numbers are still limited. We do have 1 lender who is doing these deals Commercially at 5.74% but in the main most lenders want to charge 1-2 % premium.
I understand the figures and advise clients on it every day in a similar position. We prefer to manage a small hedge fund for our clients using the same concept and gear against this by way of a low LVR margin loan however all i am saying is the lenders are limited and as you are probably aware 2 of the majors lending policy in regards to SMSF is in my opinion illegal with regards to the demand for PG's from the Trustees.
Richard Taylor | Australia's leading private lender
Richard
5.74% is darn good – i do not know, from where? – all i know is 6.85% from westpac / nab / st George and now cba – there is a loan available from ING – but i do not like that strategy where the co-borrower is the trustee of the property custodian trust with the member of the smsf who onlends the money to smsf – i think they have an in-house issue (IM available on http://www.firstfolio.com.au).
As far as PG is concerned, i think you are a bit out of date here – nowadays the lender will issue a letter to say "if the fund is going to lose its complying fund status due to PG – we will withdraw this PG" so basically PG does not exist anymore. We have done a few deals with the support of this letter.
Look, i audit close to 500 smsf each year – i think i will have a problem with the PG and i have written many newsletter on my website on it (http://www.trustdeed.com.au click previous newsletters)
who is asking only 5.74% – i can make you famous (read as rich) with new loans – we have over 10K susbscribers…
Manoj Abichandani
Hi,
I have a question about purchaing commerical properties though SMSF.
We are in the process of setting up our SMSF and are looking to purchase a commercial property which our company will rent from. We have enough cash to purchase this property outright. My understanding is that if we needed a loan to fund a property then we need to set up a bare trust. My question is whether I am allowed to use the equity in this first fully finded property to purchase a second propert which we'll need a loan for? Secondly, if we can use the equity, whether it is best to set up the bare trust now to purchase the fully funded property rather than purchasing it under the fund name?Thanks!
Great info here, thought I would refresh the topic.
Can anyone fill me in on the rules about "arms length"?
I have an SMSF and want to sell my PPOR to the fund to release cash for another purchase.
I have a feeling this cannot be done but can anyone give me the advice I need?
Cheers
Toni
If the property is residential it is simple – YOU CANT DO IT.
Commercial is a different story.
Richard Taylor | Australia's leading private lender
Richard is spot on – there is no possible way to buy your own PPOR with your super fund. In fact, you can't buy any property off yourself. If you find someone that says they have a way, run, run a long way away.
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