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Buying a House within your SMSF; The very Basics
Topic Started: 25 Nov 2016, 09:37 PM (817 Views)
Rufus
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by Peter Fraser.

All of you will know that people with a SMSF can buy a house using their SMSF, but perhaps not all of you will know how much deposit you need and what other basic conditions you need to satisfy. I don't intend to go into a lot of detail, but here are the basics.

Deposit - you will need a deposit of 30% minimum.

Set up costs, Legal fees, Stamp Duty etc - you need to cover all of those costs from your own funds.

Capital Buffer - you are required to hold 10% of the funds assets in cash or other assets that are acceptable to the lender. IE if you buy a house for $800,000 then after all costs have been paid, the lender will expect you to still hold $80,000 in liquid funds. The lenders do have some discretion on this point.

Can you live in the house - only after you retire. That might work well for some people.

How are the payments met - the bank will use the rental income and the normal borrowers superannuation contributions to evaluate capacity to repay.

Negative Gearing - Yes the house purchase can be negatively geared but not against personal income, and with a 30% deposit the house rent should cover the repayments, so there is very little tax advantage.

Security - the house will be owned within a "Bare Trust" If the loan goes pear shaped and the bank has to call the loan in, the house can be sold, but there can be no call on any other assets owned by the superannuation fund. In that respect it is a "Limited Recourse" loan.
However - the bank will take guarantees from the beneficiaries so there is "recourse" against the fund owners. In short, the bank can chase up the beneficiaries, but not assets held by the SMSF holding itself, outside of the Bare Trust.

Interest rates - these are higher than normal home loans. Somewhere around 5.6% is about average at the moment.




Edited by Rufus, 25 Nov 2016, 10:00 PM.
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herbie
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Rufus
25 Nov 2016, 09:37 PM
All of you will know that people with a SMSF can buy a house using their SMSF, but perhaps not all of you will know how much deposit you need and what other basic conditions you need to satisfy. I don't intend to go into a lot of detail, but here are the basics.

Deposit - you will need a deposit of 30% minimum.

Set up costs, Legal fees, Stamp Duty etc - you need to cover all of those costs from your own funds.

Capital Buffer - you are required to hold 10% of the funds assets in cash or other assets that are acceptable to the lender. IE if you buy a house for $800,000 then after all costs have been paid, the lender will expect you to still hold $80,000 in liquid funds. The lenders do have some discretion on this point.

Can you live in the house - only after you retire. That might work well for some people.

How are the payments met - the bank will use the rental income and the normal borrowers superannuation contributions to evaluate capacity to repay.

Negative Gearing - Yes the house purchase can be negatively geared but not against personal income, and with a 30% deposit the house rent should cover the repayments, so there is very little tax advantage.

Security - the house will be owned by a "Bare Trust" If the loan goes pear shaped and the bank has to call the loan in, the house can be sold, but there can be no call on any other assets owned by the superannuation fund. In that respect it is a "Limited Recourse" loan.
However - the bank will take guarantees from the beneficiaries so there is "recourse" against the fund owners. In short, the bank can chase up the beneficiaries, but not assets held by the SMSF holding itself, outside of the Bare Trust.

Interest rates - these are higher than normal home loans. Somewhere around 5.6% is about average at the moment.

Have you come across a list of the basics on how you draw down on/get out of one of tha f***ers that you do own in your SMSF when you go into retirement Rufus?
Edited by herbie, 25 Nov 2016, 09:48 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rufus
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herbie
25 Nov 2016, 09:45 PM
Have you come across a list of the basics on how you draw down on/get out of one of tha f***ers that you do own in your SMSF when you go into retirement Rufus?
No herbie I haven't. I know you can but I think there is stamp duty to pay and it has to be done at a specific time, but I don't know the detail.

You need a financial adviser for that.
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herbie
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Rufus
25 Nov 2016, 09:54 PM
You need a financial adviser for that.
Point - 'N probably explains why there seems ta be such a dearth of info on it on tha net.

But anyways, I reckon I've researched it reasonably thoroughly now (wot wif it bein' applicable ta me in tha not too too distant future) 'n pretty much come up wif me own strategy that just might be most useful/appropriate for me.

But Ta anyway - Woz just goin' fish in case you had - On tha off chance it might contain any glaringly obvious basics I'd overlooked.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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Rufus
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herbie
25 Nov 2016, 10:08 PM
Point - 'N probably explains why there seems ta be such a dearth of info on it on tha net.

But anyways, I reckon I've researched it reasonably thoroughly now (wot wif it bein' applicable ta me in tha not too too distant future) 'n pretty much come up wif me own strategy that just might be most useful/appropriate for me.

But Ta anyway - Woz just goin' fish in case you had - On tha off chance it might contain any glaringly obvious basics I'd overlooked.
I'll find out.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Rastus2
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Nice summary Peter.

I would still urge caution for people to seek professional finance advice when it comes to ...

"Can you live in the house - only after you retire. That might work well for some people."


Anyone can retire any time they want, especially if they have the funds to do so... that does not, however, mean they can live in a property that is owned by the SMSF... for that to be allowed, preservation age must have been reached.

In the situation where a couple have a property in their SMSF under both names... I believe BOTH couples need to have reached preservation age for them to live in it... not just one of them.
Shadow - Defrauded his Bank ? 2015 I have 9 different loans and my bank had no idea which ones were personal and which were investment. They had half of them classed incorrectly. When this change came in they asked me to tell them if any personal loans were incorrectly classed as investment, which I did, and they switched them to personal for the lower rate. They also had a couple of investment loans incorrectly classed as personal. They didn't ask me about those. So they stay on the lower rate too. Worked out pretty well. :)
Shadow - 2008 Sydney Median House Price 1.25M by 2014-2015

Shadow : I think this boom has already begun in several cities. My prediction :
Peak of boom: 2014-2015. Sydney Median Price: $1,250,000 Bottom of bust: 2017-2018. Sydney Median Price: $1,100,000

Shadow's Original 2010 House Boom and Crash prediction http://s836.photobucket.com/user/rastus22/media/shady-orig-2010-chart.png.html?sort=3&o=0

Shadow's attempt to edit his 2010 chart in 2015 and replace it with one that does not show a crash in 2013 http://s836.photobucket.com/user/rastus22/media/Screen%20Shot%202015-06-06%20at%207.12.52%20pm_1.png.html
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Rufus
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Rastus2
25 Nov 2016, 10:53 PM
Nice summary Peter.

I would still urge caution for people to seek professional finance advice when it comes to ...

"Can you live in the house - only after you retire. That might work well for some people."


Anyone can retire any time they want, especially if they have the funds to do so... that does not, however, mean they can live in a property that is owned by the SMSF... for that to be allowed, preservation age must have been reached.

In the situation where a couple have a property in their SMSF under both names... I believe BOTH couples need to have reached preservation age for them to live in it... not just one of them.
Yes - fair points.
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herbie
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Rufus
25 Nov 2016, 10:20 PM
I'll find out.
Ta Rufus - Will look forward to it.
Edited by herbie, 25 Nov 2016, 11:15 PM.
A Professional Demographer to an amateur demographer: "negative natural increase will never outweigh the positive net migration"
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