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What limit for SMSF borrowing?

Discussion in 'Superannuation, SMSF & Personal Insurance' started by super_act, 5th Mar, 2013.

  1. super_act

    super_act smsf newbie

    Joined:
    5th Mar, 2013
    Posts:
    5
    Location:
    Darwin
    Dear All,

    I've been learning as much as I can about setting up a SMSF to invest in property and tonight I went to a seminar where the presenter said that SMSF borrowing for direct investment in property was “limited to 80% of the value of the fund.”

    This was news to me as I'd previously been advised that I could borrow $300k to put with my $150k, buy a property for $400k and have a decent buffer.

    Can someone confirm or disprove this latest advice and provide a link to ato or similar?

    Cheers,

    Clint.
    (my first post so please be gentle!)
     
  2. Terryw

    Terryw Well-Known Member

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    9th Jun, 2006
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    Location:
    Sydney
    There are no real limits. A SMSF could borrow 100% if there was a bank willing to lend.

    But like any borrowing, a lender will only lend a certain percentage for a purchase. I have not seen a SMSF lender offer more than an 80% LVR. 70% is more common.
     
  3. super_act

    super_act smsf newbie

    Joined:
    5th Mar, 2013
    Posts:
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    Location:
    Darwin
    Thanks Terry, that's what I thought.
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Clint,
    The commercial lenders range from a top of 70% loan to value ratio (LVR) to 80% of the value of the asset purchased, depending on the lender. If you lent the money to the SMSF, you could lend 100% as Terryw suggests. People can sometimes do this by revaluing their own property/ies and refinancing to pull out equity to lend to the SMSF which then can purchase the investment property.

    There are numerous presentors out there who have little idea on the rules and are just trying to sell something, whether it be property (typically new and off the plan) or loans.

    That said, make sure you have a very good buffer for a number of reasons, liquidity first and foremost, investment strategy to adhere to as outlined in your trust deed and ability to meet the SMSF obligations when they fall due.

    My view is that $150k in funds is tight. On the basis the SMSF can show servicing, a $400k purchase will require a minimum of 20% plus stamp duty and associated costs. Do the numbers first and get a pre-approval from a SMSF lender to make sure you can get an 80% LVR loan before you commit to purchase. The other factor to consider is the costs, I have not seen a comparison that suggests $150k is a lower cost option than even retail funds.

    Godo luck.
    Greg