Residential Property with Borrowings

Clients of ESUPERFUND are permitted to invest in Australian Residential Property where the SMSF borrows to fund the Property Purchase.  To simplify the Loan Application process all clients of ESUPERFUND who wish to borrow to invest in Residential Property for their SMSF are required to use the St George SMSF Loan Product.  This ensures that ESUPERFUND can continue to offer its annual compliance services at a cost significantly below market. 

Loan Application Process

Once your SMSF has been established by ESUPERFUND and you wish to borrow to acquire Residential Property for your SMSF, you can apply for an SMSF Loan using the St George SMSF Loan Product.  The Loan Process is detailed here.

Interest Rates and Fees

The St George SMSF Residential Loan Interest Rates and Fees can be found here.  While ESUPERFUND will constantly review the St George SMSF Loan Interest Rate and Fees and update our website accordingly, you should always confirm the Interest Rate and Fees by reviewing the St George website or by contacting St George directly.  It is important to understand that the Interest Rates charged by Banks on SMSF Loans are typically 1% -2% above the Standard Variable Loan for Non SMSF Loans.  This is due to the extra risk that these loans carry given that they are non recourse in nature.  For example the Commonwealth Bank, ANZ Bank and Westpac Bank have a Standard Variable Rate for their SMSF Loan Product of 8% - 9% per annum, which is up to 1% - 1.50% per annum higher than their Standard Variable Rate Non SMSF Loan Product.  The St George Standard Variable Rate however is in line with their Non SMSF Loan Product, which is a major factor they are currently our preferred Lender.

Security Custodian Trust Structure

When acquiring Residential Property using a Loan, the Residential Property being acquired must be purchased using a Security Custodian Trust.  This Structure is also commonly referred to an Installment Warrant Trust or Bare Trust.  When you apply for a St George SMSF Loan with ESUPERFUND, we will arrange for the preparation of all the required documentation to establish the Security Custodian Trust.  It is important to understand that the Trustee of the Security Custodian Trust must be a Company.  If you have a Company as your SMSF Trustee this Company cannot be used as the Security Custodian Trustee.  The Company must be a completely separate Company.  Further information on this Structure can be found in our Loan Theory section here.

Separate Security Custodian Trust Structure for each Property Purchase

A separate Security Custodian Trust must be established for each Property that is acquired.  You cannot buy multiple properties using the same Security Custodian Trust Structure.  Importantly however you are permitted to use the same Security Custodian Trustee Company to act as the trustee for each Security Custodian Trust.  This saves you the cost of establishing multiple Companies.

How to Complete the Purchase Contract

When acquiring Residential Property using a Loan, the Residential Property must be purchased in the name of the Security Custodian Trustee Company.  The following is noted:

The Property must be purchased in the name of the Security Custodian Trustee Company.
All Directors of the Security Custodian Trustee Company must sign the Purchase Contract.
It is recommended that the Purchase Contract be signed "subject to finance".
You must not put the name of your SMSF on the Purchase Contract.

Example:

If the Security Custodian Trustee Company Name is Smith Pty Ltd then the purchaser on your Purchase Contract will be:  Smith Pty Ltd.  Neither the Trustees of your SMSF or the SMSF itself should be named on the Purchase Contract when borrowing to purchase Property in your SMSF.

ESUPERFUND Property Loan Setup Fees

ESUPERFUND attends to the entire setup process of your SMSF Residential Property Purchase and Loan Establishment including:

Providing a prepopulated Loan Application
Establishing the Security Custodian Trust Structure
Arranging sign off that the Investment complies with your Investment Strategy
Arranging legal advice on how the Security Custodian Trust operates
Updating your Investment Strategy to ensure the Investment is allowed (where applicable)
Updating your SMSF Trust Deed to ensure the Investment is allowed (where applicable)
Liaising with the Lender to ensure the Loan is setup in accordance with Super Laws

ESUPERFUND charge a fee of $500 to attend to all the SMSF Loan requirements detailed above.  The fee is payable prior to the lodgement of the SMSF Application with the Lender.  If the SMSF Loan Application is unsuccessful or you do not proceed with the application for any reason an amount of $300 will be refundable to you.     

Annual Compliance Fee

No additional annual fee is payable by clients who invest in Residential Property with their SMSF, whether they borrow or not.  Our annual fee remains fixed at $699 per annum.  This is unprecedented in the marketplace who will charge additional fees upwards of $1,000 for clients who invest in property particularly with borrowings in a SMSF.

Permitted Property Types

At this time clients can only borrow to purchase Residential Property that has already been constructed, using the St George SMSF Loan Product.  Clients cannot borrow to purchase Vacant Land.  It may however be possible to borrow for an Off the Plan purchase where the construction will be completed at a later date.  In this case you can use cash from your SMSF ANZ V2 Plus Bank Account to fund the deposit and once constructed the Lender will provide the balance of the purchase price.  It is strongly recommended that you seek "Preapproval" before placing a deposit on the Property to ensure that the Lender will lend for the purchase.

Maximum Loan to Value Ratio (LVR)

The current Maximum Loan to Value Ratio on the St George SMSF Residential Loan Product is as follows:

Where your SMSF Trustees are Individuals:  72% of the Property Value.
Where your SMSF Trustee is a Company:  80% of the Property Value.

Accordingly where you require a higher Lending Ratio of up to 80%, you will need to ensure that your SMSF Trustee is a Company.  If you currently have Individual Trustees it is possible to appoint a new Company Trustee for your SMSF.  As detailed above, it is important to understand that the Trustee of the Security Custodian Trust must be a Company.  If you have a Company as your SMSF Trustee this Company cannot be used as the Security Custodian Trustee.  The Company must be a completely separate Company. 

Lenders Mortgage Insurance

No Lenders Mortgage Insurance is payable on the St George SMSF Residential Loan Product.

Maximum Loan Amount

The Maximum Loan Amount on the St George SMSF Loan Product is $2,000,000. 

Accessing Information by ESUPERFUND

Data for SMSF Residential Loans processed through St George will be electronically accessible by ESUPERFUND alleviating you of the responsibility of maintaining these records at financial year end.  Additional information such as Rental Income and Expenses will be tracked by ESUPERFUND through the ANZ V2 Plus Account where all Income will be banked and Expenses paid in relation to the Property.  Where additional information is required we will request this from you as part of the annual Checklist Process.

Depreciation Schedule

Clients who have acquired a Residential Property in their SMSF, particularly newer properties, are able to legally claim depreciable items including carpets, furniture, fittings and so on.  To maximize the depreciation tax claim it is advisable, but not compulsory, that you engage a Quantity Surveyor to prepare a Tax Depreciation Schedule for your SMSF relating to the Property Purchase.  A Tax Depreciation Schedule is simply a document that lists all the Properties Depreciable Items, their effective life and the dollar value you can claim against your SMSF Income.  For example for a newer property, depreciation claims may be in the thousands of dollars annually.  So for example if your annual depreciation claim was $5,000 you will save $750 in tax annually (ie $5,000 x 15%).

Avoid Audit Issues

ESUPERFUND is involved in the entire SMSF Loan Setup Process, ensuring that ALL client SMSF Loans are correctly established.  This ensures ATO compliance issues and associated penalties are eliminated and that client SMSF Loans are compliant with Super Laws.

Product Disclosure Statement

The Product Disclosure Statement for the St George SMSF Loan should be carefully reviewed prior to applying for a SMSF Loan. The relevant Product Disclosure Statements can be obtained by contacting the Lender directly.

No Loan Advice Provided

ESUPERFUND (whether directly or via associated entities) is an execution only Loan Service.  That is based on a review of the SMSF Loan Products available you are satisfied that the St George SMSF Loan is appropriate for your SMSF.  By applying for a St George SMSF Loan we will assist you to obtain an approval for that selected Loan and attend to all associated paperwork.  At no time can ESUPERFUND recommend that the St George SMSF Loan is the appropriate Loan for your SMSF needs, objectives or circumstances.

What if use wish to use another Lender

If you purchase a Residential Property using borrowings and use a Lender other than St George, ESUPERFUND will be unable to act as the accountant for your SMSF.