Checklist for a property purchase
It is essential to have the necessary cash flow inside a self-managed super fund to cover the ups and downs of investment property ownership. A trustee checklist can be useful when preparing to borrow money in an SMSF to purchase a property:
Maximise your contributions
Lenders will want to see that regular contributions are being made to your super fund. They need to be at a sufficient level to meet the lending criteria. If you are a PAYG employee then 9.5% of your income, along with optional additional super contributions, will be taken into account when the lender is assessing the application. For self-employed applicants, all contributions made from the business will be taken into account in assessing the loan. Additionally, it is recommended that members discuss the level of their contributions with their accountant or financial adviser.
Check your balance
Ensure that your SMSF balance is above $200,000 with sufficient funds to allow for a deposit of at least 30%, costs associated with the purchase and the lender’s liquidity buffer. The buffer has been introduced by lenders to provide the SMSF with sufficient capacity to cover any unexpected expenses after settlement.
Watch your age
It becomes increasingly difficult to obtain a loan in your SMSF when members are over the age of 55. The ideal age is under 50 at the time of settlement. A realistic, occupation-appropriate retirement age is also a key factor in getting the loan approved.
Get up to date
Ensure that all the company, individual and SMSF financials and tax returns are up to date and showing a profit. The level of profit, along with member contributions, will determine the borrowing capacity of the SMSF.