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In Australia, taking out SMSF loans to acquire property has become extremely popular – but the SMSF loan is a specialised product.
Blogger: Michael Blowing, co-founder, Allied Investment Group
Fortunately it has become much easier to get an SMSF loan. However, it is important to understand that SMSF loans are different from other loans.
Here’s what you need to know to get started:
1. Interest rates are more competitive. To get the lowest rates, it helps to have someone on your side who is constantly monitoring the rates. Interest rates for SMSF loans are typically close to standard variable, rather than the discounted rates available to a personal investment property loan.
2. The SMSF loan is a highly specialised loan, so be patient and have a specialist on your side. A bank credit officer with special training will review your loan and this may take longer than a normal review. The loan officer may have questions that a specialist in SMSF loans needs to answer.
3. Understand your obligations before you commit. Lenders want to ensure that investors fully understand all their obligations before entering into an SMSF loan.
4. Line of credit and redraw are not options for SMSF loans, but you can still structure the loan to help you achieve your long-term objectives with maximum flexibility.
5. You must have an SMSF structure in place before property contracts are created then signed. You’ll need an ABN number; this can take up to 28 days. If you’re moving your existing superannuation from a retail or industry fund, a rollover may take up to a month. Once the rollover is complete, funds will be available for the deposit.
6. You will need a bare (security) trust in place so you meet your legal obligations and the requirements of the bank. You will need a bare trust for each property you acquire.
7. There’s a TON of documentation and it must be professionally prepared. The SMSF loan is a complex instrument with multiple parties. An experienced SMSF mortgage broker will check the documentation before settlement or exchange to ensure the transaction is legally watertight.