We do our share of Self Managed Super-Fund (SMSF) lending here at Mortgage World Australia. Our clients, on the advice of their accountant or their financial planner, get in touch with us about how much they can borrow to invest in property through their Self-Managed Super Fund.
From a lending point of view, the number of options has dropped over the last few years. Larger banks don’t want to touch these loans anymore due to stricter regulatory requirements that were introduced in 2018. This means that finding the right lender requires someone who knows the market.
You Won’t Get A Loan With The Big 4.
The Big 4 banks don’t like lending to SMSFs these days which means that secondary lenders are stepping up to fill the void and meet market demand. However, their lending criteria are very strict and they have a number of rules about how much they’ll lend.
Here are the general rules on the finance side you will have to deal with to invest in property through your SMSF.
The first is, that some lenders you to have at least a $250,000 fund balance to to qualify for an SMSF loan. Note that some lenders don’t require a minimum balance.
There may be a liquidity requirement, so you can’t invest the entire balance of your fund in property or properties. The reason is that your fund will need cash on hand to cover vacancies and other unforeseen events. It is also not wise to put all your eggs into one basket. As a good Financial Planner would tell you, diversification is important.
The next hurdle is going to be the Loan Value Ratio (LVR). The maximum LVR allowed depends on factors such as the value of the property and the location. It is now possible to borrow up to 90% of the property value if the security property is a standard residential house in a major metropolitan area. Other types of investments in other locations might be 70% or possibly lower.
This will affect where you can buy.
If you invest in a brand new property instead of an existing property some lenders have different lending requirements. Mainly, they may lend a lower percentage of the property value.
A lot of the options you can expect on a residential home loan are not available on an SMSF loan, for example, redraw is not an option and not every SMSF loan offers a 100% offset account.
The interest rates on SMSF loans are quite a bit higher than standard residential investment rates. Expect the rate to be at least 1% p.a. higher.
Finally, the members of the super fund will have to act as guarantors for the loan.
It’s enough to make your head spin. The good news is, between your accountant, financial planner and mortgage broker you will setup the required structures correctly and obtain the required SMSF loan for your purchase. Mortgage World Australia has been helping its clients who invest in property through their SMSF with their finance by working with the rest of their team to figure out the best possible borrowing strategy and secure them the best deal they can get on their SMSF loan.
Call 1300 661 211 or register online at https://www.mortgageworldaustralia.com.au/contact-us/ for a no-obligation, no-cost SMSF loan strategy session where we can talk about what you need to get in place to invest in property through your superannuation.