Buying Property Through a Self Managed Super Fund (SMSF)

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9 Mistakes To Avoid When Buying Property Through a Self Managed Super Fund

1. Obtain Loan Pre-approval Before You Establish a Self Managed Super Fund & Holding Trust.

Trustees need to do their homework before establishing a Self Managed Super Fund & Holding Trust. Seek advice on the income & expenditure on the property to be purchased. Contact the financial institution to see if they do loans in a Self Managed Super Fund, and if they do, what are the loan and deposit requirements from that bank. Negotiate the best interest rate that you can with the financial Institution. Read through the terms and conditions of the offering of that Institution. Determine the super contributions that are going to be made to the Self Managed Super Fund.


2. The Self Managed Super Fund Trust Deed

The governing rules of a Self Managed Super Fund are very different and you need to have a trust deed that has very wide discretion and meet the specific requirements that you are after. This would require in your trust deed specific requirements to cover limited recourse borrowing arrangement that satisfies section 67A & 67B of the SiS Act.

3. Do you need the Self Managed Super Fund to Borrow?

If you hold enough cash to purchase a property in your Self Managed Super Fund, there may be no need to borrow. If you want to borrow to have some diversification in the fund, that can be a good reason to borrow. Borrowing does add an additional layer of complication that some trustees do not want to venture.

4. Type of Trustee on the Self Managed Super Fund

Individual Trustee verses Corporate Trustee. Each has their advantages and disadvantages. Over the longer term an Individual Trustees become more expensive, than Corporate Trustees. We would always recommend Corporate Trustees. Cost is not a reason to implement Individual Trustees.

5. Seeking Advice

Seeking good advice will save you money. If you get borrowing to acquire a single asset strategy wrong, the cost can be high. There are lots of Trustees who are having to seek advice to fix the problems that were made as no advice or poor advice had been sought.

6. Purchase of the Self Managed Super Fund & Holding Trust

Quality Self Managed Super Fund Trust Deeds and quality Holding Trust Deeds are important to the success of your borrowing strategy. This is not the place to look and save money. The quality of your documents will also save you money over the longer term. Life will all ways through you some curve balls. You need to be able to rely on your documents to salvage what you can.

7. Getting the names correct on the purchase contract

The name that goes on the purchase contract will need to be the Corporate Trustee on the Holding Trust and have this noted that this is being held on behalf of the Self Managed Super Fund. No one wants to redo the purchase contract and cop stamp duty all over again for getting the name wrong. Care needs to be taken to get this correct.

8. What entity is the loan held in?

Sounds simple but a number of trustees get the loan in the wrong name. The loan should be held in the name of Trustee of the Self Managed Super Fund.

9. Bank Account

There should only be one bank account and that is held in the name of the Self Managed Super Fund, there is no bank account for the Holding Trust.