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SMSF Loans - What are the options?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by LHGC, 17th Feb, 2018.

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Do you think this should be possible?

  1. Yes

    0 vote(s)
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  2. No

    1 vote(s)
    100.0%
  1. LHGC

    LHGC New Member

    Joined:
    17th Feb, 2018
    Posts:
    1
    Location:
    Gold Coast
    Hi all,

    I am trying to find the right SMSF loan provider for a friend.

    Fund info -
    Balance: $500,000
    Annual Contributions: $2,000 (our main source of issue in obtaining finance), and limited ability to make any further contributions.
    Member Age: 50
    Investment Property: Anywhere between $250k older unit and $450k newer standalone property.
    LVR: Open to suggestion to make a deal work.

    Although the fund actually has enough money to buy a property outright, the members would like to borrow through an LRBA if possible, to allow them to keep the residual balance invested, liquid and diversified.

    The lenders I’ve tried to speak with so far (I’m not a finance broker but work in a related field);

    - St George - Just generally were very hard to deal with. BDM didn’t seem knowledgeable and didn’t return calls.
    - Westpac - Said they would be happy to look at the deal, but only if all other banking came over to Westpac, e.g. personal Home Loans, Bank accounts etc.
    - AMP - I have heard that they are quite tough in their assessment of SMSF loans.

    If anyone has any experience or suggestions, that would be much appreciated.

    I appreciate there may be people commenting that if the members cannot contribute more to the fund, they shouldn’t be borrowing. The way I look at this is that, particularly at a lower purchase price and LVR, they will still have circa $250k cash and investments in their fund, which are liquid and will earn income to top up what I have calculated to be a relatively minor shortfall in cashflow, if any shortfall.

    I appreciate that banks shade the rental income for servicing, and increase the interest rates. So at this stage I’m beginng to think that either; a) SMSF lending really is much harder to be obtain these days, or b) it’s hard to find anyone (i.e. bank BDM / broker) who really understands the options here and can provide what I would have thought would be a reasonably easy solution (Given the fund could buy the property today with cash!).

    Thanks in advance!
     
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  2. SMSFCoach

    SMSFCoach Member

    Joined:
    17th Jan, 2017
    Posts:
    14
    Location:
    Castle Hill, Sydney, Australia
    Try lendex.com.au but lenders must confirm borrower has capacity to repay the loan. Remember it is a Limited Recourse loan so they have no access to the other assets of the SMSF in the event of default. So arguing the borrowers have $250k in other assets in the SMSF is next to meaningless.

    Could the fund really earn 8-9% gross guaranteed to offset the cost of the borrowing at 5.5 to 8%. Where are those $250k best invested? Could the diversification be built up with the rent and future low contributions?
     
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  3. AnthonyKing

    AnthonyKing Active Member

    Joined:
    30th Oct, 2010
    Posts:
    40
    Location:
    Sydney NSW
     
  4. AnthonyKing

    AnthonyKing Active Member

    Joined:
    30th Oct, 2010
    Posts:
    40
    Location:
    Sydney NSW
    Hi Anonymous
    Your answer might be a Related Party personal SMSF LRBA loan..
    That is: a Bank loan secured against your home or investment property On lent by you/spouse to your SMSF. on arms length terms.
    See S65, S109 SISA 1993, make sure you read the ATO Safe Harbour Rules
    Regards
    AnthonyK
     
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  5. alby.grey

    alby.grey New Member

    Joined:
    12th Aug, 2010
    Posts:
    2
    Location:
    melbourne
    When using a LRBA, the asset must be held in a bare trust by a custodian. CBA offered a product called “SuperGear” that purported to meet the LRBA requirements. However, it now seems that when the SuperGear LRBA is concluded and the asset is transferred to the fund trustee, stamp duty will be payable (notwithstanding the CBA PDS says a stamp duty exemption should be available).

    CBA are washing their hands of this matter. Their official, written response when presented with this problem is “in the PDS the Bank makes it clear that it is the responsibility of the investor to seek their own independent taxation and legal advice”

    Suggest you avoid CBA.
     
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  6. Terryw

    Terryw Well-Known Member

    Joined:
    9th Jun, 2006
    Posts:
    842
    Location:
    Sydney
    Unfortunate, but CBA are correct. They cannot give legal advice on the stamp duty consequences. It is the trustee's (of the SMSF) responsibility to consider this. Trustee's negligence is something they could be sued for - but a member is unlikely to sue a company which they control.

    It would never have been a good idea to use a custodian trustee in which you the member didn't control.
     
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