SMSF Loan – 10 Step Guide

Step 1:  Is an SMSF and SMSF Loan for you

If you already have a SMSF you can skip to step 4. Before you start looking for a property to buy within a self managed superannuation fund (SMSF), you need to evaluate if a SMSF is right for you. I suggest that do some reading and you talk to a SMSF Specialist Advisor (call 07 3354 4021 to book an appointment time). I would also suggest that you examine lender SMSF loan requirements to ensure that you will be able to service a SMSF loan (if you would like an appointment or even a second opinion we can assist in contacting an experienced mortgage broker).

Step 2:  Set-up your SMSF

If you decide that a SMSF is right for you, complete our SMSF establishment form and your SMSF will be up and running. Explore Super will assist in all the registrations, including obtaining an ABN this can take up to 28 days to receive from the Australian Taxation Office (ATO). I would always recommend that you set-up your fund with a corporate trustee (read our article for the reasons) as most lenders insist on a corporate trustee. The establishment take a few days to process and the establishment cost for the SMSF and Corporate trustee is $1,390 (incl.GST).

Step 3:  Rollover your Existing Super Benefits to you SMSF

The new SMSF will be able to accept rollover’s your existing Super Fund and you and/or your employer can make Contributions to the SMSF. Explore super will assist you with rolling over your SMSF Benefits from your existing fund. Depending on your existing fund this can in some cases take some time (several weeks).

Step 4:  Apply for your SMSF Loan and get Pre Approval

It is advisable to obtain pre approval from your lender before you set up your SMSF Borrowing Structure so unnecessary costs are not outlaid if the loan is not approved.

Step 5:  Setup the Borrowing Structure

SMSF Loan Structure LRBA

A SMSF is required to comply with superannuation law, as such borrowing with require a particular structure called a Limited Recourse Borrowing Arrangement (LRBA). This includes a Holding Trust to hold the asset at trust for the fund, typically with a separate corporate trustee. Explore Super Ltd assist you get the information together for the legal firm to prepare the documents. Costs are $1,200 (Incl. GST) for the Holding Trust and $730 (Incl. GST) for the corporate trustee.

Step 6:  Search for and Purchase the  Property

Once the Holding Trust is established and the documents are correctly signed and executed, you are able to sign a contract on the purchase of the property.

Important: The contact purchaser must be the Holding Trustee (corporate trustee) at trust for the Holding Trust and all directors must sign the contract. You must not put the name of the SMSF or the name of the SMSF Trustee on the purchase contact (If you are in any doubt at all call us before you sign). I would recommend that the purchase contract be signed “subject to finance”.

Step 7: Documents to lender

Once the Purchase Contract has been signed to acquire the Property, all the documents will need to be complied for your lender and your conveyancing solicitor. Explore Super can assist in the smooth flow of information to your lender and conveyancer. The loan will be in the name of the SMSF Trustee at trust for the SMSF and all repayments will be made by the SMSF.

Step 8:  Final Loan Approval by Lender and Settlement

Your lender and conveyancer will facilitate the loan documents through to the final settlement.  We will require a copy of all these documents to send to the fund auditor when the financial statements for the year have been processed.  I suggest that you provide us with these documents as soon as you have them so they are not misplaced.

Step 9:  Property Transfer and Mortgage Registration

The property will be transferred to the Holding Trustee at trust for the fund (note; is some states the Holding Trustee will only be registered) and the mortgage are registered.  This will be arranged by your solicitor or conveyancer.

Step 10:  Property Rent and Expenses

Following settlement the property can be rented. Superannuation law prohibits residential property being rented to a member or related party of the SMSF, please obtain advice on the particular rules.

Rent will be paid directly to the SMSF. Loan repayments and all related expenses will be made directly from the SMSF.

General Information Only

Superannuation law can be complex and you should not act without seeking professional advice. This information provides a general guide to the steps involved in borrowing and buying a property through a self managed superannuation fund SMSF.  The information is not legal, financial or real estate advice. Explore Super Pty Ltd excludes all liability for loss or damage suffered by you as a result of your reliance on the information.