TRANSKRIP 🔗
WEBVTT
00:00:03.680 --> 00:00:07.839
Hello and welcome back to the podcast My Accounting Advantage.
00:00:07.839 --> 00:00:14.800
Today is episode 28, and we're looking at the inside of the self-managed super funds.
00:00:14.800 --> 00:00:17.679
Lending, what banks really look for.
00:00:17.679 --> 00:00:24.800
My, we have such a big topic that we're going to cover today, and it's connected to all the ones we've done in the last few weeks.
00:00:24.800 --> 00:00:31.120
In a nutshell, we're even going to bring in a very special guest to assist us with depth of knowledge today.
00:00:31.120 --> 00:00:33.759
But take us into what we can expect from today's programme.
00:00:34.079 --> 00:00:46.000
Well, what we can expect is the continuance from last week, which we talked about the limited recourse borrowing arrangement and how it works within the SMSF environment.
00:00:46.000 --> 00:00:51.600
And today we dive into the borrowing part because that's what it is.
00:00:51.600 --> 00:00:56.000
It's the type of special lending within the SMSF.
00:00:56.000 --> 00:01:05.280
And how it works is very different to the typical residential loans and any other loan because it's a very specialized area.
00:01:05.599 --> 00:01:10.799
My what's been really interesting since the show started is we're bringing facts and evidence.
00:01:10.799 --> 00:01:11.120
Yeah.
00:01:11.120 --> 00:01:14.480
People are making decisions out there versus Facebook posts.
00:01:14.480 --> 00:01:16.319
Things they're hearing in social media.
00:01:16.319 --> 00:01:20.719
The amount of people that have said to me, Lee, you can't borrow from a self-managed superfund anymore.
00:01:20.719 --> 00:01:21.280
It's all over.
00:01:21.280 --> 00:01:22.799
And I go, where did you get that from?
00:01:23.120 --> 00:01:24.239
Yes, that's right.
00:01:24.239 --> 00:01:45.920
So we want to clarify that it's still okay to borrow under a self-managed superfund, but the rules have changed because recently uh the government has basically stopped SMSF from borrowing and purchase residential properties, which is very interesting.
00:01:45.920 --> 00:01:51.200
They're just trying to carve out, you know, all the opportunity to invest.
00:01:51.200 --> 00:02:01.040
Um, you know, whether it's investors, mum and dad or SMSF that want to actually purchase investment properties.
00:02:01.040 --> 00:02:09.840
So they just want to limit the investment to commercial within the SMSF, which is called real properties.
00:02:09.840 --> 00:02:23.199
So from the 10th of August 2026, SMSF are no longer allowed to borrow under an LRBA, which is limited recourse borrowing arrangement, to purchase residential properties.
00:02:23.199 --> 00:02:29.039
And that same goes for uh existing properties and also new properties.
00:02:29.360 --> 00:02:34.000
This is a very sad moment for all the consumers I get to assist and speak to.
00:02:34.000 --> 00:02:40.960
They don't always understand shares, but they can walk past a property, look at it, and think, okay, that's what I'm working for.
00:02:40.960 --> 00:02:45.039
It gives us a rental return, I can pay it off, and money comes back in.
00:02:45.039 --> 00:02:46.879
And that's clarity for some people.
00:02:46.879 --> 00:02:47.120
Yeah.
00:02:47.120 --> 00:02:50.080
And you've got to have an understanding of investment.
00:02:50.080 --> 00:02:56.719
Whereas in commercial, commercial is a fantastic investment, but it's a better investment if you're going to be your own tenant.
00:02:56.719 --> 00:03:01.680
It's a great investment if your son runs a business and you think, we'll invest and buy the shop.
00:03:01.680 --> 00:03:05.199
And if anything goes crazy, we can cover you for a moment.
00:03:05.199 --> 00:03:06.960
You need a reason to invest.
00:03:06.960 --> 00:03:10.479
And the fact they're taking residential out, I just don't understand it.
00:03:10.800 --> 00:03:16.719
Yeah, I think it's just to reduce the demand in the market, and that's their logic.
00:03:16.719 --> 00:03:23.840
But to me, you know, you've got to look a little bit more wider in terms of in investment options.
00:03:23.840 --> 00:03:38.240
And also those who have worked and sacrificed all their lives to, you know, build their property portfolio as well, that's affecting them because there's m a massive reduction in demand for the property.
00:03:38.240 --> 00:03:41.919
So the property prices, as you know, is actually coming down.
00:03:42.319 --> 00:03:47.039
Yeah, we're seeing close to 30% across the nation, which is some suburbs, yeah.
00:03:47.039 --> 00:03:50.400
And how many billions of dollars in stamp duty is that?
00:03:50.400 --> 00:03:52.240
That's just gone missing instantly.
00:03:52.240 --> 00:03:54.400
So that causes concern.
00:03:54.400 --> 00:03:57.599
But who's gonna be the rental providers of the future?
00:03:57.599 --> 00:04:01.039
All these kids, all the university, everyone's got to live somewhere.
00:04:01.360 --> 00:04:15.360
But if people aren't providing rentals and they can't just buy new because new's not happening fast enough, no, not especially when there's so many red tapes and hoops that you've got to jump through with local council, etc.
00:04:15.360 --> 00:04:17.120
It's unbelievable.
00:04:17.439 --> 00:04:24.399
Well, let's get deep into our topic and we're gonna bring in Luke Talbot, our loan specialist, to bring some clarity on this.
00:04:24.399 --> 00:04:25.759
Luke, welcome to the program.
00:04:25.759 --> 00:04:26.160
Hi.
00:04:27.360 --> 00:04:32.319
Hi, welcome back, and thank you for um coming on the show today.
00:04:32.319 --> 00:04:33.120
No worries.
00:04:33.120 --> 00:04:38.000
I'll just fire up the first question that's been on everyone's mind.
00:04:38.000 --> 00:04:42.160
How has the new LRBA law changed the lending landscape?
00:04:42.480 --> 00:04:47.519
Look, uh, SMSF um and in the investment space has changed.
00:04:47.519 --> 00:04:51.120
You can still buy a residential in SMSF.
Load full transcript
00:04:51.120 --> 00:04:54.560
The problem is you've got to cash fund it yourself through the SMSF.
00:04:54.560 --> 00:04:55.759
You can't borrow for it.
00:04:55.759 --> 00:05:02.959
The biggest change is obviously what security and what purpose lending can be used for within an SMSF arrangement.
00:05:02.959 --> 00:05:04.639
So the biggest thing is commercial.
00:05:04.639 --> 00:05:07.519
It has to be a specific type of security.
00:05:07.519 --> 00:05:11.040
It can't be just vacant commercial land and that type of stuff.
00:05:11.040 --> 00:05:15.519
It needs to be an asset that is income deriving.
00:05:15.759 --> 00:05:18.959
And um so that's the definition of the real property, isn't it?
00:05:18.959 --> 00:05:23.120
Is just to, you know, provide commercial aspects.
00:05:23.120 --> 00:05:23.759
Yeah.
00:05:23.759 --> 00:05:30.000
So that that's where the lending is limited now to just commercial, real properties.
00:05:30.000 --> 00:05:36.079
But the definition of real property in this case is the usage of the property.
00:05:36.079 --> 00:05:50.240
So the property that I want to clarify, it can be in R2 residential, but if it's being used as a commercial property to house a business, then it's still qualified because it's per use.
00:05:50.480 --> 00:05:56.879
Yeah, so the statutory test is real property used wholly and exclusively in one or more business for business use.
00:05:57.199 --> 00:05:57.360
Yeah.
00:05:57.360 --> 00:06:05.680
So um, since the 10th of August 2026, the government stopped RIBA lending pretty much.
00:06:05.680 --> 00:06:06.560
Is that is that right?
00:06:06.959 --> 00:06:07.759
Yes, for residential.
00:06:07.839 --> 00:06:09.360
Yeah, for residential for SMSF.
00:06:09.680 --> 00:06:11.120
Correct, for new purchases.
00:06:11.120 --> 00:06:17.120
You can still borrow in an SMSF for residential if you've already owned it and you're doing a refinance.
00:06:17.120 --> 00:06:22.639
So you can still refinance existing um held debts and structures and things like that.
00:06:22.639 --> 00:06:27.120
You just can't borrow for new acquisition in residential.
00:06:27.519 --> 00:06:27.759
Yeah.
00:06:27.759 --> 00:06:32.319
So have you had many inquiries since then about the changes?
00:06:33.040 --> 00:06:36.959
It's because it's only just happened on the 10th of August, and I know that was a couple of weeks ago.
00:06:36.959 --> 00:06:46.959
The biggest thing is getting everyone's strategy in SMSF and borrowing and investing in SMSF isn't the same as, oh, look, I wake up one day and I saw a property down the road and what did I buy it.
00:06:46.959 --> 00:06:49.199
There's just a lot of moving parts in it, right?
00:06:49.199 --> 00:07:03.199
And so, yeah, we are seeing it, but it's only just now is that stuff coming through because by the time your accountant looks at it, by the time your financial leader looks at it, by the time you get the legal structure in place, yeah, that now is only just now coming to fruition
with these changes.
00:07:03.360 --> 00:07:13.439
So I think a lot of listeners don't really understand how the SM SMSF lending different from the mainstream lending.
00:07:13.439 --> 00:07:15.920
So can you explain the process?
00:07:16.240 --> 00:07:22.240
So there's really three credit um sort of assessments that occur with an SMSF.
00:07:22.240 --> 00:07:26.000
So it's the borrower or the fund itself, um, the property and then the structure.
00:07:26.000 --> 00:07:26.399
Okay.
00:07:26.399 --> 00:07:31.680
So the borrower or the fund is the the SMSF itself is the borrower.
00:07:31.759 --> 00:07:32.000
Yeah.
00:07:32.160 --> 00:07:33.759
It doesn't actually hold the property though.
00:07:33.920 --> 00:07:34.160
No.
00:07:34.399 --> 00:07:35.360
A um a bear trust.
00:07:36.079 --> 00:07:36.160
Yeah.
00:07:36.399 --> 00:07:40.399
Property trust, custodian trust, whatever that that terminology is used.
00:07:40.399 --> 00:07:40.560
Yeah.
00:07:40.560 --> 00:07:42.319
Essentially it's a it's a property trust.
00:07:42.319 --> 00:07:46.000
Holds the property and pledges it to the SMSF for use as security.
00:07:46.000 --> 00:07:46.399
Yeah.
00:07:46.399 --> 00:07:48.319
So the borrower itself is the fund.
00:07:48.319 --> 00:07:50.959
You've got so there's again, there's multiple entities of it.
00:07:50.959 --> 00:07:51.439
Yeah, yeah.
00:07:51.519 --> 00:07:53.120
No, we talked about that last episode.
00:07:53.120 --> 00:07:53.839
So yeah.
00:07:54.240 --> 00:07:58.959
The the property itself, then, um, is a a definite credit criteria now.
00:07:58.959 --> 00:08:11.199
So they understand they want to understand uh the the the market yield or the property or the rental return, they want to understand the zoning, they want to understand the usage, you know, has it previously been rented out, they want to understand all that sort of stuff.
00:08:11.439 --> 00:08:14.160
So what you're referring to is that's the bank requirement.
00:08:14.160 --> 00:08:28.079
So in order for someone to obtain or you know, doing like ask you to do the borrowing capacity assessment for the SMSF, what would be um the first thing that you look for?
00:08:28.399 --> 00:08:31.040
So there's multiple things we we we have to do, right?
00:08:31.040 --> 00:08:33.039
There's there's a multiple questions we have to do.
00:08:33.039 --> 00:08:37.919
Does the property structure qualify as uh the a borrowing requirement?
00:08:37.919 --> 00:08:38.480
BRP.
00:08:38.480 --> 00:08:38.720
Yeah.
00:08:38.720 --> 00:08:40.240
Acceptable security.
00:08:40.240 --> 00:08:42.559
What is their the yield on that?
00:08:42.559 --> 00:08:47.440
What is the members' contribution to the SMSF or employee contributions to the SMSF?
00:08:47.440 --> 00:08:47.759
Yeah.
00:08:47.759 --> 00:08:51.679
They they look at how much liquidity is in the SMSF.
00:08:51.679 --> 00:08:57.919
So liquidity is how much um cash cash have they got in the business both now but also post-settlement.
00:08:57.919 -->
00:09:02.799
So there is some policy requirements in there that you need to have a certain amount of cash after you've settled on that property.
00:09:02.799 --> 00:09:04.559
So it's just a lot of little moving.
00:09:04.960 --> 00:09:05.120
Yeah.
00:09:05.120 --> 00:09:19.039
So what would be the deposit, like well, the cash contribution that the SMSF need to have, like in percentage, before they can look at reaching out to you and this is the hard bit.
00:09:19.120 --> 00:09:24.559
So SMSF lending is not the same as residential lending for mom and dad investors going out to buy buy a house down there.
00:09:24.559 --> 00:09:24.799
Yeah.
00:09:24.799 --> 00:09:25.279
Okay.
00:09:25.279 --> 00:09:29.360
So the SMSF lenders that are in this space, so there's not a lot in this space anymore.
00:09:29.360 --> 00:09:29.759
Yeah.
00:09:29.759 --> 00:09:30.000
Right.
00:09:30.000 --> 00:09:32.320
So we'd let's be let's be very clear on that.
00:09:32.320 --> 00:09:40.000
They they will borrow, they'll lend up to um some will lend up to 75% of the value of the property, some will end up to 80% of the value of the property.
00:09:40.000 --> 00:09:43.519
Some will reduce that percentage based on the postcode.
00:09:43.759 --> 00:09:44.159
Right.
00:09:44.320 --> 00:09:51.279
Based on the zoning of that property, based on the usage of that property, if it's an industrial warehouse versus a just a commercial.
00:09:51.279 --> 00:09:55.200
Um, so you've got to be there's no just like there's no cookie cutter, right?
00:09:55.200 --> 00:09:55.679
That's right.
00:09:55.679 --> 00:09:57.039
So it's no cookie cutter.
00:09:57.039 --> 00:10:02.879
That's why you need to have someone evaluate what your position is and work out a strategy.
00:10:02.879 --> 00:10:06.000
This is not something where, hey guys, I've bought a property.
00:10:06.000 --> 00:10:07.440
Can you now fund it for me?
00:10:07.679 --> 00:10:07.919
Okay.
00:10:07.919 --> 00:10:23.360
So basically the process is once they got advice from the accountant or the financial planner, well, then the next step is to reach out to a um mortgage broker like you, like specializing in um SMSF borrowing, and then you start their assessment.
00:10:23.679 --> 00:10:28.080
Yeah, so so like I said, you can borrow up to 75-80% of the value of the property, right?
00:10:28.080 --> 00:10:30.000
So you still need 20% of the property.
00:10:30.240 --> 00:10:30.879
25 to 30.
00:10:31.200 --> 00:10:32.559
You've got to factor in stamp duty.
00:10:32.559 --> 00:10:38.799
SMSF borrowing or or structures are not the same as just going out and borrowing again and borrowing a property.
00:10:38.799 --> 00:10:40.240
You need to have the structures in place.
00:10:40.240 --> 00:10:44.480
Yeah, it's getting foster a few grand to have this all set up properly, right?
00:10:44.480 --> 00:10:47.759
There is still application fees, there's valuation fees, right?
00:10:47.759 --> 00:10:49.519
Different to residential lending.
00:10:49.519 --> 00:10:53.120
The the fees within a lender could be a couple of grand as well.
00:10:53.360 --> 00:10:56.240
Yeah, what hits me is the establishment fee.
00:10:56.240 --> 00:10:56.559
Yep.
00:10:56.559 --> 00:10:56.879
Yeah.
00:10:56.879 --> 00:10:57.919
For for the loan.
00:10:58.159 --> 00:11:00.000
So again, this is lender specific.
00:11:00.000 --> 00:11:05.840
Some lenders will charge stupid fees and some will will actually couple of grand.
00:11:06.080 --> 00:11:06.320
One percent.
00:11:06.320 --> 00:11:06.720
Yes.
00:11:06.720 --> 00:11:10.879
You usually that's that's at least one percent, which is a lot.
00:11:10.879 --> 00:11:11.200
Yep.
00:11:11.279 --> 00:11:16.879
So you need the legal costs, you need the valuation lender costs, you need the holding trust and the SMSF establishment costs.
00:11:16.879 --> 00:11:21.600
There's potentially GST considerations depending on on the type of property and the transaction itself.
00:11:21.600 --> 00:11:26.879
And then again, you like I said before, you still might need some post-settlement liquidity.
00:11:26.879 --> 00:11:34.960
So some lenders, first markets it itself, yeah, they want 5% liquidity of SMSF value sitting in cash post-settlement.
00:11:34.960 --> 00:11:39.120
So they'll actually do the calculation, work out stam tuning costs, and work out whether or not you've got enough.
00:11:39.120 --> 00:11:40.720
If you don't have enough, nah, deal's dead.
00:11:40.879 --> 00:11:41.120
Yeah.
00:11:41.120 --> 00:11:41.600
Okay.
00:11:41.600 --> 00:11:47.360
So the next question I have is which banks are actually lending to SMSF at the moment?
00:11:47.360 --> 00:11:52.159
Because, you know, you and I know that the big fools don't play in this space anymore.
00:11:52.320 --> 00:11:52.480
Yep.
00:11:52.480 --> 00:11:54.320
So let me let me qualify something here, right?
00:11:54.320 --> 00:11:56.399
And and this is my opinion.
00:11:56.399 --> 00:12:00.080
The big boys got out of this 12, 11, 12 years ago.
00:12:00.080 --> 00:12:00.720
Okay.
00:12:00.720 --> 00:12:12.240
And the reason, the the primary reason they got out of this was there was a worry in the property market that people were creating a false market because SMSF in Resi was such a big thing 12, 13 years ago, right?
00:12:12.240 --> 00:12:15.600
Everyone was buying property in SMSF and it was creating a false market.
00:12:15.600 --> 00:12:24.000
And the government and the regulatory um bodies were worried that people's retirement fund could get smashed if there was a reality check in the property market.
00:12:24.000 --> 00:12:24.639
Okay.
00:12:24.639 --> 00:12:26.320
And so they handbraked it, right?
00:12:26.320 --> 00:12:30.000
And effectively, that's now what the government is now pushing harder now.
00:12:30.000 --> 00:12:35.519
So for me personally, I understand it's going to hurt some investors here, but I actually understand why they're doing it.
00:12:35.519 --> 00:12:47.600
You've still got if if
everyone's pulling their money out of these industry funds and sticking in SMSF and then trying to buy all this property, and then then there's a property handbrake because what was happening at the moment, and you've got negative equity, people can't retire.
00:12:47.600 --> 00:12:51.759
And then is there going to be more pressure on the government, more pressure on pensions, more pressure on social.
00:12:51.759 --> 00:12:52.480
Yeah.
00:12:52.480 --> 00:12:54.080
So I understand why they're doing it.
00:12:54.080 --> 00:12:58.720
So back on lenders, you've got you've got about half a dozen that are playing in this space.
00:12:58.720 --> 00:13:02.480
So the likes of Pepper Money, Liberty, Latrobe, First Mac, Red Zed.
00:13:02.480 --> 00:13:02.799
Yeah.
00:13:02.799 --> 00:13:04.480
So there's so there's there's a few in there.
00:13:04.480 --> 00:13:09.840
And again, some will charge higher fees, some will borrow, lend you, yeah, 75% to 80%.
00:13:09.840 --> 00:13:12.879
Yeah, so there's there's there's definitely a few out there.
00:13:13.039 --> 00:13:22.960
Yeah, so there's still options out there, just not the big fours and the typical banks that would lend, you know, for the the standard loan.
00:13:22.960 --> 00:13:24.960
And and these banks know that, right?
00:13:24.960 --> 00:13:26.080
Yeah, so they're charged.
00:13:26.960 --> 00:13:27.120
Yeah.
00:13:27.120 --> 00:13:28.080
Interest rates.
00:13:28.080 --> 00:13:30.399
Don't don't come to a broker going, yep, cool.
00:13:30.399 --> 00:13:36.399
Uh, you know, I've done some chat GPT numbers and um, you know, borrowing at six and a half percent.
00:13:36.399 --> 00:13:37.279
Yeah, it's not that.
00:13:37.279 --> 00:13:43.440
If you're gonna borrow at eight, eight percent, and if you're gonna borrow at 80% for the commercial property, you are gonna be looking in the eights.
00:13:43.440 --> 00:13:43.759
Yeah.
00:13:44.720 --> 00:13:44.879
Yeah.
00:13:44.879 --> 00:13:45.279
Yeah.
00:13:45.279 --> 00:13:48.559
So that there are ways around it, which we've done.
00:13:48.559 --> 00:14:03.600
You know, if you the, you know, the the members of the self-nessed super funds actually have equity in their home, they can actually borrow against um the equity and then also lend it to the self-nessed super funds.
00:14:04.000 --> 00:14:05.759
So it's a two two application process.
00:14:05.759 --> 00:14:12.879
So they they gear up on their on their equity within their personal property to create a contribution to their SMSF and Yeah.
00:14:12.960 --> 00:14:15.039
Well, it it doesn't need to be contribution.
00:14:15.039 --> 00:14:18.799
It can also be like um an R L RBA to themselves.
00:14:18.799 --> 00:14:34.320
So it will be if we go that way, that direction, it will be to me, it, it's quite it's a lot more cost effective because you don't pay for the loan establishment fee for the SMSF, which is a thousands of dollars in saving.
00:14:34.320 --> 00:14:35.039
Yeah.
00:14:35.039 --> 00:14:54.720
So what you can do, correct me if I'm wrong, is you know, you can actually get an cash equity release from the their personal situation, yeah, and borrow against their home and then personal properties or whatever other securities are selling, yeah, and then do an RBA to the SMSF.
00:14:54.720 --> 00:15:01.759
And um, as long as there's an RBA agreement between the member themselves and the SMSF, that qualifies.
00:15:02.240 --> 00:15:02.480
100%.
00:15:02.480 --> 00:15:02.879
Yeah.
00:15:02.879 --> 00:15:03.360
100%.
00:15:03.360 --> 00:15:09.039
And it makes sense doing the the example that I use, and and I'm and let me, I'm gonna talk personally.
00:15:09.039 --> 00:15:09.759
Yes.
00:15:09.759 --> 00:15:14.240
So my business was previously paying $130,000 a year in rent, right?
00:15:14.240 --> 00:15:15.600
Commercial rent, special property.
00:15:15.600 --> 00:15:16.399
Yeah, crazy.
00:15:16.399 --> 00:15:20.480
What can I do with that $130,000 a year, right?
00:15:20.480 --> 00:15:21.919
What else could I do?
00:15:21.919 --> 00:15:26.720
And so this is where let's look at I've got some clients that they're an electrician, right?
00:15:26.720 --> 00:15:30.559
They've just bought commercial property, commercial warehouse, right, in Erina.
00:15:30.559 --> 00:15:35.519
And they have saved themselves on rent, created an investment plan, they're still paying market rent.
00:15:35.519 --> 00:15:36.320
So this is the thing.
00:15:36.320 --> 00:15:37.120
But to themselves.
00:15:37.120 --> 00:15:38.480
Right.
00:15:38.480 --> 00:15:43.600
And so they've they geared up on their property and they did it L L RBA to their SMSF.
00:15:43.600 --> 00:15:47.919
Yeah, and they did this, and they borrowed it 55%, I think, from memory.
00:15:48.240 --> 00:15:49.519
Yep, L VR, yeah.
00:15:49.679 --> 00:15:52.399
Yep, and it and it's a it's an amazing structure for them.
00:15:52.639 --> 00:16:04.559
It really is because once you actually make contribution up to your you know, annual contribution cap, you can actually help pay off that loan whilst getting tax deduction on the contribution.
00:16:04.879 --> 00:16:05.840
So it's a win-win.
00:16:05.840 --> 00:16:13.840
So that works on an owner, owner-occupied, and I'm needing to be careful about using the word owner-occupied, but essentially your business is renting it from the front.
00:16:14.000 --> 00:16:15.360
And then I think that's the best setup.
00:16:15.600 --> 00:16:15.840
Right.
00:16:15.840 --> 00:16:21.200
The the the risk that you play in if you were to just go buy an investment property, the commercial property anywhere, right?
00:16:21.200 --> 00:16:23.360
Who's going, you're gonna have tenancy risk?
00:16:23.360 --> 00:16:25.360
Yes, that that's vacancy risk.
00:16:25.360 --> 00:16:28.399
Yeah, commercial property isn't the same as residential property, right?
00:16:28.399 --> 00:16:31.440
So you've got to factor that into your strategy.
00:16:31.440 --> 00:16:42.080
Do I have enough in my member contributions and and in my available cash position in the SMSF to be able to suffice a tenant moving out if you're gonna go down that strategy?
00:16:42.080 --> 00:16:47.279
And that is why having your strategy down pat before you go out shopping is so, so important.
00:16:47.279 --> 00:16:49.840
That involves your accountant, your financial target.
00:16:49.840 --> 00:16:50.240
Absolutely.
00:16:50.240 --> 00:16:53.440
Your legal planning and a broker's decision.
00:16:53.440 --> 00:16:54.000
Honestly.
00:16:54.159 --> 00:16:54.480
Yeah.
00:16:54.480 --> 00:16:58.799
And there's always another way to invest in property, like commercial property.
00:16:58.799 --> 00:17:07.200
If you don't actually want to borrow MSF or, you know, have the cash out from the member to lend back to the SMSF.
00:17:07.200 --> 00:17:16.799
You can also, like we've we've done this, Luke, um a few times, where I establish a unit trust to purchase a commercial property.
00:17:16.799 --> 00:17:22.640
And then, you know, the investors within the unit trust structure is the SMSF.
00:17:22.640 --> 00:17:42.799
It can inject a certain amount of balance in there, and then the member themselves also have another investor who come in and or two SMSF um inject cash into the unit trust to start the initial purchasing process and then So in layman's terms, you've got a you've got a vehicle, a unit trust up the top.
00:17:42.799 --> 00:17:43.039
Yeah.
00:17:43.200 --> 00:17:46.000
And underneath it, you've got an SMSF or two SMSFs.
00:17:46.079 --> 00:17:46.319
Yeah.
00:17:46.400 --> 00:17:48.720
Um, and the unit trust is the one that's buying.
00:17:48.960 --> 00:17:49.200
Yes.
00:17:49.200 --> 00:17:50.720
And then it borrows the rest.
00:17:50.720 --> 00:17:51.119
Yeah.
00:17:51.440 --> 00:17:56.000
So that's so that's not under the SMSF rulings for from a League 40.
00:17:56.000 --> 00:17:56.880
That's right.
00:17:56.880 --> 00:18:02.079
Um some lenders, as soon as they see an SMSF is involved from a beneficiary or a unit.
00:18:02.079 --> 00:18:04.160
They have a problem with it, they start having a problem with it.
00:18:04.160 --> 00:18:11.039
There are some lenders that will still do it, but you need to do pretty much a round table with that lender to make sure that it works.
00:18:11.039 --> 00:18:11.440
Yeah.
00:18:11.440 --> 00:18:13.759
So we've just done that recently with a couple of cops.
00:18:13.759 --> 00:18:14.240
Yeah, okay.
00:18:14.240 --> 00:18:14.799
And it worked.
00:18:14.960 --> 00:18:15.119
Yeah.
00:18:15.119 --> 00:18:15.440
Awesome.
00:18:15.519 --> 00:18:17.440
So did it, and there's a couple of other people.
00:18:17.519 --> 00:18:21.680
Is there like a restriction in terms of lending to the unit trust?
00:18:21.680 --> 00:18:24.000
Are they like as much restriction?
00:18:24.319 --> 00:18:25.039
No, not at all.
00:18:25.039 --> 00:18:27.599
So it's still deemed as a as a commercial borrower.
00:18:27.599 --> 00:18:31.119
So if you're buying
residential, is that what you're talking about?
00:18:31.359 --> 00:18:33.519
Well, you can, yeah.
00:18:33.519 --> 00:18:35.680
That's just another strategy or together.
00:18:37.119 --> 00:18:41.920
If you're going down the path of buying commercial, it is going to be deemed as a business loan and all that sort of stuff.
00:18:41.920 --> 00:18:42.319
Yes.
00:18:42.319 --> 00:19:01.680
And if it processed to normal hug lending, if you're going down the path of a unit trust, and it's not talking about the beneficiaries and unit holders right now, but if the unit trust is buying a um a residential property, there are only there are only certain lenders will let you lend to that to that structure because they don't want to just keep people setting up unit trusts, you know, separate.
00:19:02.079 --> 00:19:11.359
Yeah, especially now they're trying to do that to get around the negative gearing because they can still do that if they inject cash into the unit trust to purchase at a push.
00:19:11.359 --> 00:19:12.799
The residential property, yeah.
00:19:13.200 --> 00:19:13.519
Exactly.
00:19:13.519 --> 00:19:17.039
There's a few TikTokers and social media influencers that are pushing that avenue.
00:19:17.200 --> 00:19:17.359
Yeah.
00:19:17.440 --> 00:19:18.720
Um, but you just got to be careful of that.
00:19:18.720 --> 00:19:19.599
That yeah, that's all I like.
00:19:19.839 --> 00:19:26.000
But there's like there's there's opportunities to still set up a unit trust and then acquired lending.
00:19:26.000 --> 00:19:26.319
Yep.
00:19:26.319 --> 00:19:26.720
Yeah.
00:19:26.720 --> 00:19:27.759
In the normal channel.
00:19:27.759 --> 00:19:28.079
Yep.
00:19:28.079 --> 00:19:28.480
Yeah.
00:19:28.480 --> 00:19:29.279
Perfect.
00:19:29.279 --> 00:19:30.319
That's really good.
00:19:30.319 --> 00:19:31.279
Thank you for that.
00:19:31.279 --> 00:19:42.880
The what are the top three SMSF lending mistakes and assumptions that you've seen for you know the past five years when when things are changing?
00:19:43.119 --> 00:19:47.359
Yeah, so the the top three that I've seen from a lending mistake.
00:19:47.359 --> 00:19:51.759
So I'm not gonna, I'm not a professional or specialist in the accounting and things.
00:19:51.759 --> 00:19:52.400
Yeah, that's okay.
00:19:52.400 --> 00:19:54.160
I'm just gonna talk about lending.
00:19:54.160 --> 00:19:59.440
The biggest one, and it's happened a couple of times, is I've bought the property, can we now do the finance?
00:19:59.440 --> 00:20:00.880
Bum bum, don't do that.
00:20:00.880 --> 00:20:10.160
Do not so buy the property before working out the finance and the structure is a massive mistake because people fall in love with the property, they start putting deposits down and all that sort of thing.
00:20:10.799 --> 00:20:13.839
Emotionally involve themselves into that decision, yeah.
00:20:14.160 --> 00:20:20.480
So before you exchange, you ideally want a clarity of clarity around does it qualify for the from a security point of view?
00:20:20.480 --> 00:20:25.359
Does it work with particular lenders, the purchasing entity, bear trust?
00:20:25.359 --> 00:20:30.400
I'm not even gonna go into double stamp duty, but sign the contract before the all that sort of stuff, right?
00:20:30.400 --> 00:20:32.079
So there's there's some really clear things there.
00:20:32.079 --> 00:20:36.640
So don't sign a contract and then ring your accountant lawyer and broker and asking, now make it work.
00:20:36.640 --> 00:20:37.279
You can't do that.
00:20:37.279 --> 00:20:37.759
No.
00:20:37.759 --> 00:20:39.440
So the planning is key.
00:20:39.440 --> 00:20:40.000
100%.
00:20:40.000 --> 00:20:44.160
The second one is underestimating how much um cash is actually needed.
00:20:44.160 --> 00:20:49.759
So someone hears 75% loan to value ratio and thinks, yep, great, I only need 25%.
00:20:49.759 --> 00:21:04.079
Potentially, there is different equity requirements, stamp duty, legal costs, valuation, lending costs, setting up the SMSF and the holding trust, you know, those those establishment costs, setting up the trustee, getting all those things vetted.
00:21:04.079 --> 00:21:09.519
So then also potentially settlement or lender liquidity requirements post-settlement.
00:21:09.519 --> 00:21:11.599
So it's not just 25%, right?
00:21:11.599 --> 00:21:13.680
So that's that's another big mistake that I'm seeing.
00:21:13.680 --> 00:21:17.599
People get a little bit shocked when they go, Oh, how much is this actually costing?
00:21:18.000 --> 00:21:18.640
Yeah, that's right.
00:21:18.640 --> 00:21:20.480
And then they'll they'll be short.
00:21:20.960 --> 00:21:21.200
Yeah.
00:21:21.200 --> 00:21:25.599
And the and the third one is assuming that every lender assesses the same way.
00:21:25.599 --> 00:21:32.880
So in residential lending, it's pretty much a the same, just lenders have little specific niches that they play around in.
00:21:32.880 --> 00:21:43.680
It is um they no two lenders arrive at it um at the same borrowing capabilities um based on exactly the same apples for apples.
00:21:43.680 --> 00:21:44.400
They just don't do it.
00:21:44.400 --> 00:21:49.359
Yeah, differences include the maximum L VR they do, the shading of the rental income.
00:21:49.359 --> 00:21:53.680
Some will shade it at 70%, some will shade it at 80% of what.
00:21:53.680 --> 00:21:58.640
So if you're earning $100,000 a year, that some will only take $70,000 in rent, $80,000 in rent.
00:21:58.640 --> 00:22:06.240
Your contribution root um treatment, so how much you're contributing um as a minimum from a wage point of view or voluntary.
00:22:06.400 --> 00:22:06.640
Yeah.
00:22:06.799 --> 00:22:11.440
Your liquidity, some actually have minimum loan size, some actually have minimum maximum loan size.
00:22:11.440 --> 00:22:14.640
So some actually won't borrow any or lend any more than two million dollars.
00:22:14.640 --> 00:22:14.880
Right.
00:22:14.880 --> 00:22:17.359
Some will borrow, you know,
lend more than that.
00:22:17.359 --> 00:22:20.160
Some won't do play in the space until you hit $500,000.
00:22:20.400 --> 00:22:22.960
So there's a there's a a lot of restrictions.
00:22:22.960 --> 00:22:23.599
Yeah.
00:22:23.599 --> 00:22:32.640
So it's so important, yeah, so to speak to your broker beforehand and just making sure that your broker knows what what are they doing.
00:22:32.640 --> 00:22:34.640
It's really quite important as well.
00:22:34.880 --> 00:22:35.759
I just wing it.
00:22:35.759 --> 00:22:37.440
No, look, it's you do it.
00:22:37.440 --> 00:22:41.920
It is it is honestly, and there's a mortgage brokers that don't play in the space because of this.
00:22:41.920 --> 00:22:42.400
Yeah.
00:22:42.400 --> 00:22:44.319
The other you've asked me for three.
00:22:44.319 --> 00:22:46.079
I've just given you three, but can I just add one more?
00:22:46.079 --> 00:22:47.200
Yeah, for sure.
00:22:47.200 --> 00:22:50.000
The biggest the other thing is the time frame.
00:22:50.000 --> 00:22:53.599
SMSF lending is not going to get done in a week.
00:22:53.599 --> 00:22:59.039
No, is the the structures, seed vetting of of the the the SMSF line.
00:22:59.279 --> 00:23:05.200
Not just the whole structure itself, it takes like uh like four to six weeks just to set up.
00:23:05.599 --> 00:23:06.559
I'm doing one at the moment.
00:23:06.559 --> 00:23:10.400
We set it up, set up the lending positioning maybe five weeks ago.
00:23:10.400 --> 00:23:13.039
We're still not uh not there yet.
00:23:13.039 --> 00:23:14.319
Still not at approval yet.
00:23:14.400 --> 00:23:14.559
Yeah.
00:23:14.720 --> 00:23:17.759
Some lenders are sitting at three weeks, turning time.
00:23:17.759 --> 00:23:25.920
So if you want to put a you know your name on a property and it's got a cooling off period and you've only got 10 days, this is why you need to have it all done beforehand.
00:23:25.920 --> 00:23:26.240
Yeah.
00:23:26.240 --> 00:23:29.599
If you're seriously thinking about doing this as a strategy, do it early.
00:23:29.599 --> 00:23:33.119
The structuring and the conversations with your specialist advisors.
00:23:33.519 --> 00:23:37.519
And it helps to have all your professionals in one room as well.
00:23:37.519 --> 00:23:52.799
Or just, you know, if you consider getting advice from an advisor, like accountant, your financial planner who don't really have a mortgage broker in-house like we do, you need to actually make sure that they talk to each other.
00:23:53.039 --> 00:23:53.440
100%.
00:23:53.440 --> 00:23:53.920
Yeah.
00:23:53.920 --> 00:23:56.799
There's so many little things that can be missed.
00:23:56.799 --> 00:23:59.759
Um, and it could be where are those contributions coming from?
00:23:59.759 --> 00:24:00.000
Yeah.
00:24:00.000 --> 00:24:01.519
Where's the cash coming from?
00:24:01.519 --> 00:24:04.160
You know, what is the tax considerations here?
00:24:04.160 --> 00:24:06.640
You know, what is our timeframe for setting up the bear trust?
00:24:06.640 --> 00:24:09.279
What is this, you know, it's all that sort of stuff comes into play.
00:24:09.440 --> 00:24:09.599
Yeah.
00:24:09.599 --> 00:24:10.640
No, thank you, Luke.
00:24:10.640 --> 00:24:14.000
So I'll bring this, you know, episode to a close.
00:24:14.000 --> 00:24:23.599
And so if you're considering purchasing property through the SMSF, and what would be your advice to those clients, listeners?
00:24:24.000 --> 00:24:27.680
Have your professionals and your and your advisors in your corner early.
00:24:27.680 --> 00:24:28.640
Yeah, definitely.
00:24:28.640 --> 00:24:35.119
That's that's primarily, you know, we we can spitball numbers, you know, and if it does work, it does work.
00:24:35.119 --> 00:24:42.960
But it's better to know that before and say falling in love with properties or under you know, going, yep, my business can then rent this property.
00:24:42.960 --> 00:24:44.000
It's all that sort of stuff.
00:24:44.000 --> 00:24:45.839
Just stop, let's let's check it out.
00:24:46.079 --> 00:24:48.240
Yeah, stop, breathe, and get advice.
00:24:48.240 --> 00:24:51.359
So thank you so much, Luke, for your time today.
00:24:51.680 --> 00:24:52.160
No worries.
00:24:52.480 --> 00:24:55.039
You know, great insight to the lending world.
00:24:57.920 --> 00:24:58.720
No, it's great.
00:24:58.720 --> 00:24:59.599
Thanks, Luke.
00:24:59.599 --> 00:25:00.400
Thanks, Mike.
00:25:00.799 --> 00:25:05.119
And that concludes another edition of My Accounting Advantage.
00:25:05.119 --> 00:25:06.880
See you next week.