Yet another SMSF/ real estate question – but with a twist and pike to add a degree of difficulty//interest to those on this forum who think they have addressed this question before:
In Aug 2007 I bought some vacant blocks of land in a town in northern NSW.
My intention was to put a relocated or transportable home on one, then use this as an asset to borrow to do the same to the next block, and then the next….
However, the very day I Settled was a signal to the markets for interest rates to take off and off and off….. OK, they have come down now, but I am still tender and cautious. At the moment I have good employment, but contract ends June 30 2010 and then – who knows?.
I borrowed $200k and have $50k fixed and have paid down a lot, so now owe $60k variable.
However holding costs are killing me – Land tax was $10k last year – mostly due to other investment property (which is positively geared, phew!) I also pay $$$$$$$ in Council rates and mowing costs etc mean I am on a treadmill – I am not getting ahead – just going sideways.I have $120k in 4 super funds….. [(yep, dumb.. but keep reading, I am getting smarter, I hope)].
I want a SMSF so I can get on with the project.
Now – here’s the question with the twist and pike degree of difficulty.
Rather than selling the blocks to the SMSF I am thinking of holding the land and have the SMSF buy the transportable homes.
Question1?: As the landowner I could give a lease – say a 25-year lease – to the Super fund ?
If yes – the Superfund owns the transportable buildings (which can be sold and moved, so are a portable asset). The Super fund pays me, the landowner, a small amount to lease the land. I am then in the position where the land is not vacant – it is income producing, so I can claim rates, land tax, etc etc.
After paying the annual lease, the super fund then gets the rental from the transportable home.
A transportable home is about $70-85k to install. Rental return would be $150 to $180pw. (This town has a waiting list for rental accommodation, especially for a new 3-bed house). So this offers an excellent return to the super fund..Big question: Is this scenario allowable?
I am interested in this strategy because I would not have to sell the land to the Superfund, AND the $120k in the new SMSF would almost buy 2 transportables – I’d top up the short-term shortfall with either a loan and/or current employer contributions plus some salary sacrifice.
Couple of quick points
Rather than selling the blocks to the SMSF I am thinking of holding the land and have the SMSF buy the transportable homes.
Unofrtunately you are unable to sell the blocks to the SMSF anyway so that is out of the equasion.
Question1?: As the landowner I could give a lease – say a 25-year lease – to the Super fund ?
If yes – the Superfund owns the transportable buildings (which can be sold and moved, so are a portable asset). The Super fund pays me, the landowner, a small amount to lease the land. I am then in the position where the land is not vacant – it is income producing, so I can claim rates, land tax, etc etc.
After paying the annual lease, the super fund then gets the rental from the transportable home.
A transportable home is about $70-85k to install. Rental return would be $150 to $180pw. (This town has a waiting list for rental accommodation, especially for a new 3-bed house). So this offers an excellent return to the super fund..Big question: Is this scenario allowable? No regretfully no as they are related parties benefits under the SISA.
I am interested in this strategy because I would not have to sell the land to the Superfund, Regretfully cant anyway AND the $120k in the new SMSF would almost buy 2 transportables – I’d top up the short-term shortfall with either a loan and/or current employer contributions plus some salary sacrifice.
Great in theory cant be done in practice.
Richard Taylor | Australia's leading private lender
K, as the sites are not returning anything at the moment, and a single transportable is only $60k, it would be best to consider the staged development asap. Thus you are starting to get a return on the first of the block, then follow on with your strategy. As Richard points out, this is residential and you can't transfer it from your ownership to the smsf.
Thanks everyone…
Now I understand I can sell my RE to a company, which can then hold the RE for the SMSF?
Is that structure OK?The reason I want to use my SMSF is that I have a huge cash flow problem and dont think Ii can manage the repayments on the transportable while I order it and then get it installed. I imagine there would be 3 months of stuffing about what with getting plumbers and electricians and other tradies – the GFC to date has had no appreciable impact on making tradies any more available….!
Now I understand I can sell my RE to a company, which can then hold the RE for the SMSF
Not if the security is residential you cannot.
Richard Taylor | Australia's leading private lender
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