Here are my top tips from the last half dozen or so loans that I have done for self managed super funds.
1 – Start with your broker & your financial planner!
The structure for purchasing a property in your self managed super fund requires a separate trust for each property and the deed must meet a certain structure. many of the lenders actually supply the deeds for you so you can save yourself some costs by starting with the broker.
Not only will you save the cost of creating the deed but a big part of the legal cost of having an SMSF loan approved is to have the trust deeds reviewed – if you supply your own deeds expect to pay around $1,500 for this vetting process, or, if you use the banks supplied deed this fee will be much smaller or may not apply at all.
And also, the lender will want you to have a financial adviser sign off on a certificate (they provide) to say you understand what you’re entering into, and it’s a good idea for you – getting this advice with the pressure of a looming property settlement is both expensive and stressful, far better for you to have it up front (plus, it means someone qualified thinks it actually IS what you should do!)
2 – Make sure your self managed super fund itself (this is separate to the deed for the property) is already established and running. It doesn’t have to be running for long but it needs to be ready to go. You are going to need both a solicitor and a financial planner to sign a certificate with your loan documents that confirms they agree with your decision, so it’s a good idea to use a financial planner to create your fund, or another professional with alliances with financial planners and solicitors and get this step started.
3 – and the next part of this is to make sure your money is rolled over into the fund – this can take from two weeks to two months. Part of the property buying process is you need to pay a 10% deposit to exchange on the property, and this is generally at the 10 day mark so you want the money ready to go.
4 – Make sure your super fund deed actually allows for you to invest in property – the rules of your super fund are set out in the deed and they control what you can and cannot invest in.
5 – Make sure you tell the real estate agent and everyone else involved that you are buying in your SMSF, there’s two reasons for this.
Almost always you wont have your “bare trust” and “trustee” setup yet – these are generally created specifically for the property and quite often even named for the property- so if you’re buying 1 ABC street, Smalltown it might be called “The ABC Street Small town trust”. It doesn’t have to be but you have no idea how much simpler it is to manage if it is – especially if you end up buying a few of these. So, if you’ve only just found the property there’s some time involved in setting this deed up and you’re probably going to have to have to sign a contract in one name (to secure the property) and then change it when your deeds are done. (funny expression, try saying that without hearing the song in your head!)
And the second reason actually becomes my last tip – time.
6 – Be prepared for this to be a moderately slow process. We’re dealing with a complicated legal structure here and complicated legal documents so it takes care. There can also be a lot of backwards and forwards looking for more information, thats just part and parcel and if you expect it – all the better.
Keep in mind it’s a relatively new field for everyone involved. While you’ve been able to buy property in your super fund for a very long time, and you’ve been able to borrow to buy a property in your superfund for a few years, it has never been as affordable as it is right now.
If it’s new to you to be doing this, its also relatively new to the banks as well and they have small specialised teams working on these meticulously. Very small teams.
Be patient and relax, we’ll get it sorted for you.