25 February 2011

 

Taken From the Australian Financial Review February 5-6, 2011, article by Debra Cleveland:

“The changes in June 2010, mean DIY super funds can borrow under a limited recourse arrangement. This sparked huge interest in gearing, with a report late last year by research house Investment Trends finding 29,000 DIY funds were borrowing, with a further 40% expected to do so this year”.

“Too few DIY fund specialists at the banks mean loans become bogged down and that huge amounts of paperwork are doled out to clients’ financial planners, solicitors and accountants” – John Manciameli

Unlike dealing with standard home loans, it’s important not to focus mostly on costs such as interest rate and annual fees but far more important is the structure of the loan and what sorts of guarantees the lender requires”- Emma Cunningham

THE RULES – A GENERAL SNAPSHOT*

• Self-managed super funds must borrow funds through a limited recourse loan – however banks can still insist on personal guarantees

• The loan must comply with the SIS Act

• Trustees can borrow only to purchase a single asset, or number of identical assets that have the same market value (e.g. 1000 shares or the same company, at the same time)

• Borrowed funds cannot be used to upgrade the property, only maintain it

• Trustees cannot construct a building or new additions using a limited recourse loan

• Repayments are made through the super fund

• The purchase must comply with the SMSF’s investment strategy

• Trustees can borrow from anyone, including banks and beneficiaries, as long as it’s at arm`s length and the rate charged is not above market rate

• Existing properties within SMSF’s cannot be used as security to borrow for another property

• Trustees are permitted to refinance existing loans

*Please consult your advisor for advice on your own specific requirements. This is general advice and does not take into account any individuals financial or other circumstances. For full details on borrowing by SMSF please see http://www.ato.gov.au/superfunds/

Millinium’s SMSF Property Solution operates under a bank approved structure. The banks role has now been simplified to a credit procedure, assessing the strength of the property and tenancy and the financials of the SMSF.

Millinium will manage the application process, build the property trust (holding trust), assist in the review the SMSF trust deed, liaise between bank and advisor / client to ensure that the process remains on track and the acquisition moves in an orderly and timely manner until settlement.

Millinium’s fee structure is competitive and assist SMSF Trustees with the risks associated with this type of lending arrangement while working in conjunction with the SMSF’s existing advisors.

For your review and consideration please click this link to be directed to our flyer. If you have some interest for your client(s), we are more than happy to talk to you about this opportunity.

If you would like to know more you can visit our website at www.millinium.com.au.

Please email me, Mark Jenkins, if you have any questions at smsfproperty@millinium.com.au or you can call me directly on 07 3004 8832.

 

Regards

Mark Jenkins

 

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Disclaimer: © Millinium’s SMSF Property Solution (“SMSF Property Solution”) is issued by Millinium Asset Services Pty  Limited (“Millinium”), a corporate authorised representative AR No. 374382 of Millinium Capital Managers Limited ACN 32 111 283 357. AFSL No. 284336 (“Millinium Capital”). The SMSF Property Solution is not a financial product pursuant to Part 7.9 of the Corporations Act 2001 (Cth). This document does not constitute an offer or recommendation for credit or property or personal advice. Investors should consider whether this product suits their objectives, financial situation or needs. This document may be amended, withdrawn or replaced without notice and does not form a contract between parties. The return of capital or income is not guaranteed.Any acquisition of real property or borrowing involves a degree of risk and potential investors should obtain financial, legal and taxation advice and consider all risks before making any decision about investing. Before investing, SMSF trustees should obtain their own advice as to whether this investment is allowable with regard to their SMSF’s investment strategy and otherwise appropriate for their SMSF. Millinium, its parent company and/or its related bodies corporate, directors, personnel or contractors disclaim any liability or loss as a result of a person’s reliance on this document and to the extent the law allow this.