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Self Managed Super

Discussion in 'Superannuation, SMSF & Personal Insurance' started by jstein2, 21st Nov, 2009.

  1. jstein2

    jstein2 New Member

    Joined:
    21st Nov, 2009
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    Location:
    Cootamundra NSW
    Hi all,
    Just joined InvestEd. Watched Nick on the Business Channel and was interested to learn more about his comments on borrowing against ones existing real estate to provide funding to your smsf. Seems like a good way to get around the complexity of borrowing within the smsf.
    Any views,

    Dave
     
  2. Billv

    Billv Getting there

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    Sydney, NSW
    Dave

    I was going to watch it but missed it because I came home late.
    I think he would have meant to borrow against existing equity
    so you ask your bank to value your home and lend you up to 80% of it's value.

    You then onlend that amount to your SMSF using a loan agreement for the purpose of buying 1 or more properties.

    It's a good idea but it would not suit everyone.
    For example, if I had enough equity I'd use it to invest outside super first where the gearing is higher. If on the other hand I had enough properties outside super and didn't want anymore or had reached my servicebility limit then buying through super could be a good option.
     
  3. Billv

    Billv Getting there

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  4. jstein2

    jstein2 New Member

    Joined:
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    Location:
    Cootamundra NSW
    SMSF

    Hi Bill,
    Thank you for your detailed response,
    much appreciated,

    regards Dave
     
  5. Jenni

    Jenni Active Member

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    27th May, 2009
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    Location:
    Brisbane, Qld
    Hi Dave

    If you borrow against assets in your own name to contribute to super (as opposed to on -lending to a 'super unit trust') just remember that the interest is not tax deductible!.
     
  6. Superman

    Superman Well-Known Member

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    Location:
    Gold Coast, QLD
    If you act as a 'DIY Banker' and borrow and on-lend to your SMSF to fund a purchase of a property, the interest will be deductible - however the interest your SMSF pays you for the use of the monies (under a loan agreement drafted by a lawyer who knows SMSFs) will be taxable income.

    Obvioulsy have a seperate loan / LOC for any monies leant to an SMSF.

    There is still complexity with the DIY banker option - just not as much as doing it through the bank directly.

    If you lend to your own SMSF, even though you don't have to jump through as many hoops for the bank, you still need to look at all the other aspects:

    - trust deed (that specifically enables the SMSF to borrow)
    - investment strategy (gearing + property OK)
    - loan agreement
    - bare trust documentation
    - corporate trustees (SMSF + property trustee)
    - decent soliticor
    - etc

    Also just becuase you can borrow in your SMSF doesn't mean it is a good idea for you.

    You also need to remember the fundamentals of selecting the correct property that is going to provide you with the right combination of rental yield and capital growth.

    SM