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around in... nothing like that.
It must be an investment property purely
to aid your retirement – full stop.
¿ WILL EVERY BANK LEND TO ME?
Unless you’ve been living under a rock,
you’ve no doubt seen the growing buzz
surrounding SMSFs in the past couple
Even though the laws changed way
back in 2007, the GFC and subsequent
housing market lulls around the country
that followed caused a bit of a lag time in
take-up. As such, most banks were slow
to embrace the idea.
“St George was really the first big one to
get into this space and they were at least
a year ahead of everyone else,” Slack-
“A growing number are now jumping
on the bandwagon now with specialised
Most of the big lenders are becoming
active in this space, keen to capitalise
on the growing popularity. There are
differences between offerings though, so
do your homework, she says.
¿ WHAT’S DIFFERENT FROM A
Despite embracing SMSF lending, some
banks have products that lack standard
features like an offset account, Slack-
An offset can be an effective tool to
lower the interest payable on a mortgage.
“It’s still an emerging area and the
banks took their time coming, so there
can still be some variations in package
inclusions,” she says.
Another difference relates to loan-to-
value ratios (LVR), which can be a bit
more stringent than traditional borrowing.
In addition, they’ll often differ depending
on who the fund’s trustee is, she says.
“For a personal trustee, the LVR is 70 per
cent usually, whereas it’s 80 per cent for a
Despite that, the servicing calculator
a lender uses to assess a borrowing
application will only take the fund’s assets
and income into consideration, regardless
of if the trustee is a person or company.
“Another thing most people don’t
appreciate is the costs associated
with borrowing for a SMSF purchase.
Application fees can be up to $2000 alone
in most cases.”
The time it takes to assess a loan
application for a SMSF purchase can
come as a surprise, she says. The
documentation will be sent to a legal
representative, a person usually outside of
the company and based offsite.
“It takes a few weeks to get it all
reviewed, so if you’re hoping for a 30-day
settlement, you might be disappointed.”
There are both principal and interest as
well as interest-only loans on offer, she
says. Interest rates for SMSF loans can
also tend to be a little higher than
a traditional residential loan.
“Some lenders also have higher
minimum loan amounts for SMSF
purchases. One has a minimum of
$250,000 while others have floors as
low as $100,000. For one major bank,
the SMSF loans are through their
¿ CAN I USE EQUITY TO BUY AGAIN?
Short answer – no. You can’t tap into
the growing value of a property asset
held inside super to bankroll subsequent
purchases, according to BAN TACS
founder Julia Hartman.
“A property investor usually has the
benefit of leverage where they can get
more money working for them quicker,”
Hartman explains. “The downside of
borrowing through your SMSF is that
you can’t tap into equity to borrow more
money. As the equity goes up, it’s locked
in – you can’t take advantage of it to use
as a deposit on another property.”
That might not be such a bad thing,
she points out. Investors who really take
advantage of leveraging in traditional
property investment – borrowing as much
tend to be younger and more open to risk.
“As you get older, it’s wise to take
slightly less risk and most people don’t
feel comfortable borrowing as much
as their equity would allow them to,
“The inability to leverage inside a SMSF
might not be a huge problem and some
people in their 40s or 50s are probably
happy to lock their money away in super.”
Furthermore, Slack-Smith says
refinancing a loan for a property in
super can be a nightmare and there are
numerous, complicated rules associated.
¿ WHAT SHOULD I BUY?
Like any investment, it’s important to
choose the right property and make your
decision based on thorough research, a
clear strategy and your own due diligence.
James Freudigmann is the national
manager of Propell Buyers’ Advocates and
believes there are three main elements
that should be considered when it comes
to buying property inside super.
“Firstly, buy something that’s relatively
low-risk but still has a good growth
potential,” Freudigmann suggests. “This
is your retirement you’re playing with –
make sure you’re not taking a big gamble.
Mining areas for example... steer clear.”
Which has the better returns – a self-managed
superannuation fund (SMSF) where mums and
dads call the shots, or a traditional managed fund
backed by financial planning experts?
Julia Hartman, founder of BAN TACS, examined
a report commissioned by the Australian
Securities and Investments Commission, and
found some interesting results.
“On average, SMSFs returned 8.8 per cent per
annum compared with public funds of only 5.4 per
cent per annum,” Hartman says.
On top of that, the losses copped by SMSFs
in the darkest years following the GFC were
significantly lower than those incurred by
managed super funds.
SMSF versus traditional funds
OF FEES –
FEES – SMSF
Source: Rice Warner Actuaries – Cost of Operating SMSFs
æThe downside of borrowing through
your SMSF is that you can’t tap into equity
to borrow more money. As the equity
goes up, it’s locked in.Æ
BEGINNERS’ GUIDE TO SMSFs \\ FEATURE
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