sales
HOW CAN AN INVESTMENT PROPERTY
BE PURCHASED THORUGH AN SMSF?
Firstly, your client will need to set up an
SMSF. Clients will need to seek specialist
advice in relation to the appropriateness of
an SMSF from a qualified adviser, such as
Exelsuper, who specialise in SMSFs.
In simple terms, an SMSF is a
straightforward tax structure, created
for one to four members who act as the
trustees of the fund, and who are happy to
This strategy can open
up opportunities for
more sales and adding
more properties to your
rent roll.
WHAT AGENTS NEED
TO KNOW ABOUT
SELLING PROPERTY
TO SMSF INVESTORS
ACCORDING TO NEW STATS from the ATO the
number of Self Managed Super Funds (SMSFs) are
on the rise. A popular investment, of course, is
property. Glenn Doherty, a specialist SMSF
adviser, has some tips on what agents need to know
to help clients navigate the legislative and
commercial requirements for such a purchase.
F
or a number of years now,
an SMSF has been able
to purchase investment
property, either with the
funds held in super or by
using borrowings in a SMSF.
Using this type of
arrangement to purchase investment
property has been common practice for
some time, and is unlikely to change. Self-
42 ELITE AGENT • JUL-AUG 2015
Managed Super is a common structure these
days, with over one-third of all Australian
superannuation savings now held in SMSFs.
They have been particularly popular for the
control they offer, the tax advantages to be
gained, and the overwhelming number of
highly effective strategies available.
As a real estate agent this strategy can
open up opportunities for more sales and
adding more properties to your rent roll.
accept all the decision-making power and
control over how funds are invested.
There are generally two ways that an
SMSF can purchase property: either with
funds already held inside an SMSF, or by
taking out a Limited Recourse Borrowing
Arrangement (LRBA).
Most people will not have sufficient
funds to purchase an investment property
through their SMSF; therefore they will be
required to implement a Limited Recourse
Borrowing Arrangement.
WHAT IS A LIMITED RECOURSE
BORROWING ARRANGEMENT?
Essentially an LRBA is a borrowing
arrangement that allows an SMSF to borrow
for investment purposes. The arrangement
must be set up under strict criteria. The
loan is held through a separate trust called
a bare trust. The bank only has recourse on
the property held in the trust, not the other
assets held within the SMSF. This is shown
in the diagram opposite.
AS AN AGENT, WHAT DO YOU NEED TO
KNOW?
The buyer can purchase a single acquirable
property; that is, a single residential
property or a group of units. The buyer
cannot significantly change the nature of
the property, for example by demolishing
and rebuilding it. It is important that,
where clients are buying an established
residential property, they are clear on what
the borrowed funds can be used for. You can
use the funds under this arrangement for
maintenance or repair, but not to renovate
and change the nature of the property. You
can, however, use funds already in the SMSF
to renovate it, provided it does not change
the nature of the property.
When completing the sale documentation,
Limited recourse loan
SMSF
Lender
Principal and interest
payments
Beneficial
ownership
Rental
income
Custodian
Property held on
trust for SMSF
Lender’s
security
limited to
property
Property
the property must be bought in the name
of the trustee of the bare trust where the
property will be held. This will always be
a trustee of the SMSF. It cannot be in the
name of your clients.
However, if the property is being purchased
solely with funds from the SMSF, the name
to be entered on the contract will be the
trustee of the SMSF, either an individual or
(as is more common) a corporate trustee.
This structure must be in place prior to
the entering of any contract to purchase a
property. It generally takes approximately
two to three months to make such
arrangements, from setting up the SMSF,
transferring super-funds into the SMSF
and arranging the trust for where the
property will be held.
It is advisable that the client has preapproval for the funds to purchase the
property. At present banks will generally
lend up to 80 per cent of the purchase
price of the property. However, with
concerns about property prices in Sydney
and Melbourne, banks are reviewing their
policies around these types of arrangements
and we may see this come down.
The property cannot be rented to a family
member or related party. It cannot be used
as security for other investment properties.
For every investment property there can
only be one charge over the property.
Purchasing property through an SMSF
can be a great wealth creation tool if used
correctly. It can also provide business
opportunities within your real estate
business.
*Purchasing investment properties through
an SMSF is complex; the information given
here is to provide a general understanding of
these arrangements. Anyone considering this
type of strategy should seek appropriate advice
from an SMSF specialist.
Glenn Doherty is a financial
organiser/SMSF specialist
at Exelsuper. For more
information visit exelsuper.
com.au.
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