Redwood Home Loans and Redwood Advisory SMSF Specialists will guide you through the SMSF Loans process from SMSF Set-up to settlement to ensure there are no surprises. After all – SMSFs are supposed to be fun.
Below we describe the steps taken to ensure a smooth SMSF Loan process.
1. Your SMSF must be established before your purchase a property or apply for a loan
Before you apply for a loan or sign a contract of sale for the purchase of property, Redwood Advisory will establish the SMSF before SMSF property purchase date.
2. The SMSF Trust Deed must be compliant
It is important that your Trust Deed is prepared by a Lawyer and includes the necessary SMSF borrowing powers. If your Trust Deed is dated before 2010, we strongly recommend a “Deed of Variation” to reflect current Superannuation Law. This will ensure there are no nasty surprises and a large bill from the banks legal team prior to settlement.
3. SMSF Investment Strategy
Superannuation Law requires SMSF Trustee’s to regularly review their Investment Strategy. Please ensure SMSF Property is included in your asset allocation.
4. SMSF Loan Pre-approval
Generally you would like to know how much you can borrow prior to purchasing a SMSF property. A Redwood broker will take the headaches out of applying for a SMSF Loan and apply for a pre-approval with a suitable lender. Once pre-approved, your lender to provide an ‘indicative loan offer’ for your Fund. This will provide an indication the loan amount, interest rate and Loan to Value Ration (“LVR”). Now that you know your borrowing power, you can begin the SMSF property search.
5. Find an SMSF Property
An important part of the process is selecting an SMSF Property including residential and commercial property. The type of property will impact the LVR, for example, generally the LVR for residential property is 80% and for commercial property is 70%. Depending on the type of property you are searching for the lenders criteria may vary. For instance, certain lenders will reduce LVR for off-the plan investments and may exclude vacant land or rural property.
6. Establish a Custody/ Bare Trust
This may sound complex but it is relatively straightforward when performed by Redwood Advisory – SMSF Specialists. Redwood Advisory can arrange the Custody Bare Trust to be prepared at a reasonable fee. The Bare Trust is set up before the contract of sale is signed.
7. The investment loan must be a limited-recourse loan and may include a personal guarantee
The loan will have to be secured against the property that is to be purchased and will include a personal guarantee.
8. Contract of sale
Once you have completed your due diligence and completed the set up of the SMSF Bare Trust, you will be required to sign the contract of sale. Please ensure you contact Redwood Advisory for guidance on the name to be used on the contract of sale – this will differ for each state.
9. Appoint a Solicitor/ Conveyancer
It is imperative to appoint a conveyance/ solicitor with experience in SMSF Property. For Residential Property expect a fee around $700-1000 (varies by state) and for Commercial Property expect a fee of around $1000-1500. They will review the contract of sale including section 32 prior to the contract becoming unconditional.
10. How many days should I leave for settlement?
An SMSF loan is like no other – the documents submitted to a lender will include:
• SMSF Loan Application
• SMSF Trust Deed
• SMSF Custody Bare Trust
• Contract of Sale
• Prior year SMSF Financial Statements and Tax Return
• Proof of income for all members
• Other documents to be determined by the lender
Please ensure you allow 45 days from the contact of sale to enable a smooth and efficient SMSF loan process. SMSF’s should be fun, allow an adequate period of time to ensure there are no headaches at settlement time. Of course, a Redwood broker will guide you through the process to ensure there are no surprises.
Want help financing your investment? Its important to obtain the right loan to meet your needs contact us for a free, no obligation consultation.
Disclaimer – The content has been prepared without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice. The author and Redwood Advisory disclaim responsibility for reliance on the information detailed in this article.
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