This is the full transcript of our popular video “Adding a Property To Your SMSF with an SMSF Loan“.
Okay so in our previous video we showed you the structure that would allow a self managed super fund to purchase a property using a loan. What I want to show you now is, briefly, how that will look once the property is in the picture. So we’ve got a $500k property, for the sake of the example, on the contract for the purchase of that property, the name that’s going to go on the contract is the name is the bare trust and the trustee of the bare trust. So that’s what’s going to go on the Title and on the Contract of Sale. On the loan application what the bank is interested in is actually the entity that’s going to be getting money – that’s the self managed super fund. So that’s your contract of sale, that’s your loan application. Very simply, but there’s a lot of confusion sound that. We go to the bank and we show that this self managed super fund is getting income at the moment – and that income is the contributions that the employers for the members are paying into the self managed super fund.
Assuming we a re working with a couple – two people who are working – what we’re going to have is two employers that are contributing into the self managed super fund. We’re now looking at having an investment property that is going to return a rent. That rent is also going to go into the self managed super fund’s account. Out of that account is going to come the loan repayments and the costs associated with holding the property. An SMSF can borrow up to 80% of the value of a residential property. So for the sake of the example let’s assume that the trustees have decided to take out a $400,00 loan The loan repayments are going to come from the account where the contributions and the rent from the property are being received. So what that means in a sense is that the trustees have that property being paid off in their super without having to make any personal back pocket.
We’re going to have other costs coming out of that account, namely the costs associated with holding the property. It could be council rates, water rates, body corporate, land lord insurance and the administration of the super fund. Every year, SMSFs need to complete a tax return and that return needs to be audited. That has a cost and will be paid from the same account. That is very much what a self managed super fund with an existing property in the fund is looking like.