Best way to purchase commercial property

Hi,

We want to purchase a commercial property. We have a 500K loan approval against our home and 100K in our super (we still need to move this to an SMSF from industry fund). The property of interest is 600K.

Should we go in as a joint venture with our super or is it best to set up a unit trust and purchase units. Actually what are the real benefits of a unit trust structure versus a simple joint venture? Any other structures to consider?

Also, each year, how do we each transfer 50K (contrib cap) of the property to our super, ie what is involved and how do we calculate stamp duty and capital gains?

thanks
natasha

 

Hi Natasha,

You would be best off discussing this with a SMSF specialist as this can be quite an intricate area of knowledge. You can ring a few local SMSF specialists to see if they are able to help you.

Cheers,

Dan

PS Speak to a SMSF before making a SMSF decision.

 

Complex area. Need more information.

Such as:

You ages
What type of property
Who will rent it
Can you afford to cover payments if you have no tenants
Are you in business
If yes, will your business use the property
Insurance

Provide more detail please.

Thanks

 

Good questions from Superman and don't forget Stamp duty and legal fees as well as any costs to renovate etc as the Superfund can only borrow to acquire the asset. Any further borrowing may be considered a breach.

Also consider leaving your Industry Fund open with a small balance, especially if you have low cost insurance in there or access to low cost insurance. If you do decide to close it then male sure you have insurance cover elsewhere expecially Death and Income Protecion and/or Business Expenses. Be a shame to borrow such a large amount and find your ability to repay a problem in the event of sickeness or accident.

good luck

Liam

 

If you contribute $50K or less (depending on to-morrows budget ) you can use these funds less the contribution tax to repay the borrowed money to yourself (if you lent the money to the SMSF via a Property Warrant). You in turn would use these funds to repay the loan on your own home.

Eventually the loan would be paid out and the property can then be transfered completely to the SMSF.

Get some advice specific to your circumstances and make sure your Accountant works with your Adviser and they use a Lawyer with experience in this area like Peter Bobbin or Fiona Sonntag at Argyle Lawyers. We used them for 2 recent cases and are very glad we did! Sometimes a little bit extra for top tier advice is well worth it!

regards

Liam

 

Thanks Liam, creating our own warrant seems a good option. We were hoping to deduct our interest payments but I guess we cant in the warrant scenario.
Any other options out there?

Just to answer some of the other questions:
We are in our mid 30s, property is commercial office, initially leased, perhaps in future our business may rent the premises...

Our goals for our future property portfolio is asset protection, some tax deductibility, involving super for future tax free retirement income...

 

Natasha,

Your super fund will claim a deduction for the interest on the loan under an instalment warrant.

You / your business will claim a deduction for contributions you make to the super fund to help fund the loan repayments.

Because you are looking at borrowing a significant amount to buy the property, the bank will not lend you that much under a SMSF instalment warrant arrangement (LVR would be too high) - so you will have to chip in some more from the $500k amount you have approved.

This will basically be a member financed loan, which will be in addition to a loan from the bank. Alternatively you can make contributions - but the interest will not be deductible (even if the money flows through your business before you contribute it).

As you can see this gets tricky and again I support previous posts in regards to seeking specialist advice and paying for it.

Also, seriously crunch the numbers again - ensure that you can fund the repayments via rent and additional contributions.

Insurance is also extremely critical - if something happens you need to ensure that the loan repayments will always be covered!

Once again good luck and let us know you progress.