Almost every Australian who has worked in some capacity has Superannuation and many have chosen to have their own fund – a Self-Managed Super Fund (SMSF). In fact…as at March 2016 there were 566,000 SMSF’s in Australia controlling assets totaling $600 Billion – an average balance of over $1 Million in each fund.
A SMSF is a private Superannuation fund which you manage yourself, however there are strict rules and regulations detailing what can and cannot be done with the Fund.
A popular strategy is where small business owners purchase commercial property within their SMSF and use those premises to conduct their day to day business. This can be an effective way to acquire property within a SMSF rather than paying ongoing commercial rent.
James is the owner of a small manufacturing business in Melbourne. He was paying $100,000 per year in rent to his landlord and had been in the same premises for 15 years. He had accumulated around $500,000 in his Retail Super fund through ongoing contributions but he was looking for a more effective way to build his wealth and manage his overheads. After consulting his Financial Adviser, James decided to investigate purchasing a property using a SMSF.
After some research James found some suitable premises for sale for $1.5 Million. He decided to set up a SMSF using the money he had already accumulated and used those funds to contribute to the purchase of the property. He could borrow $975,000 (65% of the value) through the establishment of a Bare Trust and a Lease Agreement which would see his Business rent the premises from the SMSF.
The loan term was shorter so that James would own the premises sooner, and even with this shorter loan term the repayments were less than his existing rental payments.
All in all, James’ SMSF will own the premises outright within 15 years and the rental overhead previously being paid to his landlord is now going toward building a significant asset within his SMSF. Win-Win.
Before entering into such an arrangement, it is essential to understand your obligations and the costs involved. Seek professional advice including your Broker who will able to help you through the Finance process.
Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs.
You can contact Doug at firstname.lastname@example.org or (m) 0408 671 524.
Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.
This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.