It can seem quite daunting to buy a property with your superannuation, how does it all work? Can you just go out and sign a contract to buy a property with your super? Where do you start? Do you look for properties to buy first? Have you set up yours self managed super fund? Who sets this up? What does a financial planner have to do with the purchase? When do I need to talk to my broker? Should I let the Real Estate Agent know I’m buying in a self managed super fund? If my super is in an industry fund how do I roll it over into my new SMSF? Does my accountant need to involved and can he set up the entities for the SMSF?
There are some great questions here and probably more, the first thing you need to know is you have to set up a team around you as you’re going to need all of these people and more.
Your team is going to need;
• Financial Planner – they help with the Statement of Advice, doing a cost analysis, reviewing your insurance, the investment strategy, once you have the SMSF set up, roll over and an annual review to keep you on track.
• Accountant – they help with the set-up of the SMSF, with the company, the SMSF trust deeds and Bare trust. They also do the annual tax return and send this to the auditor each year.
• Mortgage Broker – they help with the loan set up and costings repayments, you probably want to do a pre-approval so you know you can service the loan.
• Real Estate Agent – they help with property selection as only certain properties are suitable for a self managed super fund, i.e. you cannot do construction or a house and land contract under a self managed super fund lending.
• Solicitor – they do the conveyancing, searches, settlement and check over your contracts.
• Auditor – they will audit your self managed super fund each year
• Building Inspectors – they will inspect the property you are considering buying to make sure it’s a sound purchase
• General Insurance Broker – for your building, contents and landlord insurance.
• Property Manager – they help secure a tenant and makes sure your property is well maintained. They also deposit the rent into your SMSF account.
• You may also talk to builders, developers, interior designers, landscapers, maintenance guy, quantity surveyor (for Depreciation schedule), council, utilities companies etc.
So where do you start? Usually it will start with a conversation with a financial planner, accountant or mortgage broker. The accountants and mortgage brokers will usually refer you back to the financial planner as these guys are the only ones legally aloud to give you advice around setting up the SMSF and its investment strategy. As it is a Self-Managed Super Fund you can direct the financial planner into what you would like to invest in, be that property, shares, managed funds or any other asset class. They will then come back with a review and give their full recommendations. This is in the form of a Statement of Advice (SOA).
To purchase a property you will need to find a property, then the financial planner will need rough figures to work off for the SOA, so you’re going to have a look at some property you could be interest in. So talking to an Real Estate agent about the type of property you are looking for and they could show you a few alternatives. At the same time as this you’re going to want to chat to the Mortgage Broker to make sure you can get the finance for the property purchase.
These are the steps you will need to do if you have not set up your SMSF yet.
1. Talk to your Financial planner about the scenario
2. Find a property and talk to your mortgage broker.
3. Submit the Expression Of Interest (EOI) and $1000 deposit to hold the property.
4. Submit your loan application for the SMSF property purchase ASAP so you can get pre-approved
5. The Financial Planner will come back to you with a Statement of Advice around the property purchase
6. Only when the Statement of Advice is signed off can the accountants set up the SMSF entity and bare trusts etc.
7. Contracts can now be issued as we have the entity for the SMSF and the Bare Trust set up, this is where your solicitors come into play.
8. The Financial Planner will work on the roll-over of funds, and advice around investment, surplus funds and insurances etc.
9. You get full approval on your loan
10. Deposit gets paid on the contract usually 10% of the purchase price less the $1,000 you paid at the EOI stage.
11. Settle on the property.
12. Make sure the rental income is direct to your SMSF accounts and loan repayments are coming out of the right accounts.
Hopefully this might help answer some questions you might have around SMSF purchasing – we do understand the process is pretty complicated.
This information is of a general nature and everyone’s circumstances are different – we recommend you get quality advice from spiciest financial planners who specialise in self managed super funds.
Blue Wave Property Strategies can put you in touch with the right people, so drop us a line and start the conversation. Let us help you “Ride the Wave to Wealth”