Hi guys, my wife and i are thinking of setting up a SMSF. Do you have to have a certain amount in this fund to purchase a property? I understand that most lenders would require a 20% deposit but does the fund itself need to have more than this? Also, would the only guarantee the bank need be the property purchased through the smsf and not any personal assets?
Hope this makes sense? Thanks TO
The deposit is more like 30% depending on the bank, they will not allow LMI. i.e. the lending is generally 90% of typical borrowed amounts for both Commercial and Residential without the Lenders Mortgage Insurance.
The property purchase is through the use of instalment warrants via a bare trust with corporate trustee's. The SMSF will borrow indirectly.
Yes, you correct this is a non- recourse loan.
what is a non-recourse loan ??
Am new to this but i think non recourse means that the lender can only take a guarantee on the property purchased through your SMSF and not through any personal assets you may have. Is this right?
Hello Folks'
Gotta love google…
A non-recourse loan is a loan that is secured against a property, but does not hold the borrower personally liable for the loan. In a non-recourse loan, your lender can take your home for repayment, but cannot seize any asset besides the collateral. If you incur more debt than your home is worth, the lender simply loses the money.
I read "How to buy property with your super money" yesterday and they referred to the need for diversification. So when they talk about diversification within a SMSF, is there a percentage of what the diversification needs to be in terms of how much money you have in your SMSF? Would this need to be included in an investment strategy?
Ta TO
A balance of investments – property (direct/indirect), equities (local/os), Cash, bonds etc. You will need to have a formal strategy in place for your fund and invest according to the strategy.
For 15 years we had to put up with listening to accountants and their linked financial planners who tried to push us to sell our commercial business properties that our family solicitor advised us through setting up a unit trust that our SMSF controlled.
The nonsense of diversification by just holding paper equities was shown to be an emperor with no clothes during the GFC.
Back in 1994 when we set up our SMSF I wrote an investment plan in which I gave reasons for sticking with what we were comfortable with, being the two commercial buildings we operated our two businesses from. I mentioned the folly of investing with clowns like …Alan Bond and Christopher Skase in our plan and I still have that plan in which we mentioned our belief that one day the share market would destroy an entire generations retirement plans.
A saying from the 1929 stock market debacle that the share market was no place for widows orphans or retirees.
In the UK and the U.S.A. the sub prime & Alt A mortgage disasters has shown that property is not immune to a financial contageon. The difference is with property provided you have enough equity you can usually ride out the storm. But like any investment if you fly too close to the sun you can be burnt.
I saw this report which you might find useful
http://www.bishopcollins.com.au/ckfinder/userfiles/files/lonsdale_instalment_warrant.pdf
Thanks guys for all of the feedback. thanks hans had a look at the report which re-affirms what i thought originally. Appreciate it.
TO
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