Can I borrow to buy a house and land package off the plan in my SMSF?


I have had a number of enquiries about this strategy in the last few weeks and I felt it was worth clarifying some details.

Off the Plan

Off the Plan

As with any strategy where you commit to a large future purchase in a moving market and also take a risk on the developer performing to contract, buying off the plan can be risky.  Especially because of the way these contracts shift the risk away from the developer.  With a Self Managed Super Fund purchase with a mortgage this can be even more of an issue if the proposed lender’s final valuation comes in lower than the contracted price which is more common recently. You may then be forced to come up with the shortfall in your SMSF which may be more difficult if you have exhausted your contribution limits.

Here are the basic essentials to getting this type of strategy right:

  • The “property purchase” should be subject to one contract which must be for the completed house and land. Do not purchase land and then look for an SMSF loan to construct a property on it. You will be too late to use the land as security.
  • It is often better to have the SMSF pay the deposit and only have the lending arranged as part of the settlement. In my opinion the Holding Trust should still be in place with the Custodian/Holding Trustee on the title of the contract from the outset.
  • Ensure that the bank/ lender’s only security is only over that land and completed house/unit;
  • The only payments made in respect to the purchase are for the deposit and settlement with no “progress payments”. You may breach the “single acquirable asset” rule which is a big no-no!.
  • Be prepared to move quickly at the time of settlement. LRBA loans do not go through lender’s quickly and you should have as much of the documentation prepared in advance and ready to go as is possible. Drum this into your Mortgage Broker and Solicitor.
  • Do not borrow to the limit of your SMSF. Make sure you have some liquidity to manage low valuations or the demand for a lower LVR from the lender. Alternatively have the capacity and ability to add funds to your SMSF without breaching a contribution cap.

Now there are some who feel that more than 2 payments are possible and that the law is silent on the matter but my philosophy is to KEEP IT SIMPLE! Why makes things difficult for yourself especially when there are developers out there redesigning their contracts to meet the basic 2 payment strategy.

For those looking for more detail I would recommend reading the  issues addressed by the ATO their Taxpayer Alert TA 2012/7 and in the minutes of discussion at the NTLG Super Technical sub-group (December 2012) (if you can find a copy as the ATO took down the page) with specific reference to  example 10 within SMSFR 2012/1.

My final tip is to use a SMSF Specialist Advisor who has dealt with SMSF property borrowing and look for references from client’s they successfully guided through the process. Use a conveyancer or solicitor with experience in the intricacies of these strategies. Use a Mortgage broker that knows how to place these specialised loans and is thinking ahead at all times. Oh and READ YOUR TRUST DEED!

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

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Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

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This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

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9 Comments

  1. Warren

     /  November 3, 2016

    Hi Liam so a split contract for a off the plan house and land package is not an option for a smsf ? Regards Warren.

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    Reply
    • No Warren, it must be a single acquirable asset. Ask the developer if they have “SMSF suitable” contracts on some of their blocks. Many developers are making 20% of new developments suitable for SMSF purchase on a single contract.

      I also understand most Queensland contracts do comply.

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      Reply
  2. Gurwant

     /  June 11, 2016

    Hi Liam

    Thanks for this post. I have just few questions regarding this:

    1. In my opinion the Holding Trust should still be in place with the Custodian/Holding Trustee on the title of the contract from the outset:

    a. When signing the contract the property address and strata title is not available yet. It will be available once the construction has been finalized on settlement. So how to put the property address on the custodian trust deed when signing the contract in the beginning?

    b. As mentioned the custodian trust deed should be in place from the beginning (when signing the contract). But what if later on settlement, bank wants some changes (amendments) to be done with the custodian trust deed?

    Thanks
    Gurwant

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    Reply
    • Hi Gurwant

      I would suggest that you use the reference address used by the developer and once the property settles you use amend the schedule page with the updated details. A lawyer would be best placed to advise on this matter.

      If the bank requires changes then you can do a Deed of Variation As many lawyers have said repeatedly, the Bare Trust should be just that “Bare” and contain the minimum of data with additional detail contain in supporting documents to the deed. Where a deed of variation is required, I have had to have a few of these done for the new Safe Harbour LRBA rules and it is a simple process costing no more than $200-300 in legal fees.

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      Reply
  3. Great article Liam. It reiterates the point to deal with knowledgeable professionals as they will put clients in a better position long-term.

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    Reply
  4. Thanks for the post. very informative.keep posting

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    Reply
  1. Question on Multiple Progress Payments When Buying a House & Land Package in a SMSF | The SMSF Coach
  2. Buying a Property for your SMSF – Why Use a Buyers Agent | The SMSF Coach
  3. SMSF Borrowing: What Can I Do With An Investment Property Within The Rules. | The SMSF Coach

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