Structuring the financing of the residential property inside a SMSF
by Wealth Know How in SMSF
In this video James Dunn explains the key issues in considering borrowing for your property investment. While arranging finance can bring residential property for your SMSF within reach for many investors it can be a double-edged sword, it's important to not only understand the potential advantages and pitfalls but also your obligations.
- sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
Published on 27 Jan 14
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In this video James Dunn explains the key issues in considering borrowing for your property investment. While arranging finance can bring residential property for your SMSF within reach for many investors it can be a double-edged sword, it's important to not only understand the potential advantages and pitfalls but also your obligations.
Sponsor - Wealth Know How
Wealth Know How is the online network helping people manage their wealth through financial education. Whether you are looking for simple ways to better manage your cash, or you are after a complete strategy on how to save for retirement, we can help you understand your options. It is important to have a vision for your future, but its knowledge not dreams that will ultimately deliver financial success.
-
Venezuela tension heats up
Duration 03:16
-
Aussie dollar surprises market
Duration 03:10
-
Markets climb as investors watch US healthcare bill
Duration 02:31
The only borrowing arrangement that can be used in a SMSF is a limited recourse loan, which can only be used to buy a single residential property. ‘Limited recourse’ means that if something goes wrong, the lender’s recourse is only to that single residential asset, and not to any other assets inside the SMSF. Limits apply to how repairs and improvements can be made to the property – and these rules can be complex.
Remember that a lender only considers your super contributions and expected rental income, when assessing whether or not you can service a loan. Considering that your super contributions may be only 9.25% of your regular income, your rental income will need to cover the rest of the repayments.
SMSF property loans tend to be more costly, higher interest rate and higher setup costs, than other property loans, which must be factored into your investment decision.
If your SMSF property loan documentation and contract is not set up correctly, unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.