I have a desire to pool my wife's superannuation with mine and invest in a property. I understand that I must move into the SMSF to do this but what are the practical steps associated with the plan?

Hi Jimmy
Your understanding is not right. You can not live in a property that is owned under your own SMSF.
The property must be rented at an arms length rental agreement.

Regards Peter Rogers Broken Bay Lending Solutions

Hi Jimmy,

There are several steps and issues that you need to consider in setting up and implementing an SMSF, if your key focus is purchasing property. Lenders are tightening the rules and restrictions around lending money and I would say as a starting point you would want to ensure the combined balance of both your wife and your own superannuation balances are approx. $200,000.

You should allow for the whole process(Initial setup) to take a couple of months as well as factoring in the property purchase.

Setup of the necessary structures needed for the purchase of an SMSF include:
- SMSF Trust Deed
- Working account
- Bare trusts
- Corporate Trustees
- ABN and TFN setup

There are a number of costs associated with the initial set up of the above and a Financial Planner can assist in recommending the right strategy and ongoing management of the fund and work with your accountant and solicitor in getting this prepared.

If you would like a copy of a Free SMSF Basics Guide, please contact me on the below details and I will be able to provide you with some more in depth information.

Thanks,

Ronald Pratap
Principal Financial Adviser
RP Wealth Management
T: 0434 502 079
E: ronald.pratap@rpwealthmanagement.com.au
W: www.rpwealthmanagement.com.au
F: https://www.facebook.com/RPWealthManagement

Jimmy. Hi. Thank you for your question. The SMSF process is quite detailed, however having yourself and your wife as joint members would not be issue.
Prior to taking the jump to set this up, it would be very beneficial to cover the broad basics and do a comparison on SMSF borrowing, versus simply borrow in your own names with the benefit of Negative Gearing assistance.
With your potential to go through SMSF, things to think about will be
x The cost of setup,
x The cost of running (much higher with multiple members),
x The cost of borrowing ( also higher than a negative geared investment)
x The borrowing capacity of the fund
x The cost of loan establishment and trustee setup needs
x Ensuring sufficient liquidity remains in the fund

Lots to consider, however I would be happy to provide further info if you wish to give me s call
Regards
Ken Olds
1300 ASK KEN

Hi Jimmy,

Looks as though you'll have quite a bit of material to consider. Great to see a number of experts providing you with some advice. Typically this process can be quite complicated and access to lending has become more complicated in recent months / years. Though there is some good news.

Squirrel is a SMSF specialist operating a digital business - via our system you can establish the complete structure - establishing the SMSF including the additional structures like property holding trusts to facilitate borrowing to purchase a property online within about 5 - 10 minutes (depending on how quick you type), then you are free to work with any lender you like to arrange the borrowing. Ronald is correct in that Lenders have started to reduce their appetite for SMSF.

Squirrel is however a major lender in it's own right and we lend around $400m per year to SMSFs to fund property purchases. Like all our divisions the SMSF lending business doesn't pay or receive any commissions and therefore our loan product isn't available via brokers / advisers - in other words it is exclusively available to our SMSF clients.

I've just put some data into one of lending our tools, which calculates what and where you could buy based on your super balance and income (to qualify your minimum employer super contributions)with the following results:

If you have a combined super balance (between you and your wife) of say $120K and a combined household income of $120,000 per annum. The outputs look like this:

The Max you could borrow (if Squirrel was the lender) is: $305K - meaning the purchase price would be 382K (this factors in paying around $13K in purchase costs like stamp duty and keeping 10% in cash in the SMSF for safety sake.

You then look at what type and location of property you can buy. Our system using the above highlights the following areas in NSW that pass actual and stressed (always good to factor in rates increasing) serviceability on the loan payments (using your super contributions and the rent to pay the loan). Some places to look:

Unit: South West Rocks: Med Sale Price $242K, Med Rent $420 p/w, Gross Rental Yield 9.02%, # of units for sale: 26
Unit: Sapphire Beach: Med Sale Price $237K, Med Rent $390 p/w, Gross Rental Yield 8.57%, # of units for sale: 8
House: East Kempsey: Med Sale Price $232.5K, Med Rent $340 p/w, Gross Rental Yield 7.60%, # of houses for sale: 9
House: Captains Flat: Med Sale Price $215K, Med Rent $300 p/w, Gross Rental Yield 7.26%, # of houses for sale: 12

Obviously these are regional locations and an increase in either SMSF balance or household income would open up metropolitan areas in NSW. Alternatively considering states like South Australian and Tasmania would open up metro areas using the $120K balance we started with.

I hope some of the above made sense and best of luck as you consider the pros and cons of controlling your own retirement via a SMSF.

Regards,

Damien Linn
Squirrel Super

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