Client Profile and Initial Challenge
A professional couple, whom we will refer to as the Applicants, sought to leverage their Self-Managed Super Fund (SMSF) to purchase a residential investment property. Their initial attempt, facilitated by a previous broker, involved a property in a major metropolitan area (Property A, in Park Ridge, QLD 4125).
The proposed structure involved:
- SMSF Trust: The primary entity holding the investment.
- SMSF Trustee: A corporate trustee responsible for managing the fund.
- Bare Trust (Custodian Trust): A separate trust required to hold the property on behalf of the SMSF until the loan is repaid.
- Bare Trustee (Custodian Trustee): A corporate entity acting as the trustee for the Bare Trust.
The initial application was for a property with a contract price of $900,500 and a proposed loan amount of $720,400. However, the application was withdrawn after the bank’s valuation came in lower than the contract price, jeopardizing the deal and causing significant stress and delay for the Applicants.
How we help?
Following the setback, the Applicants approached the st Financial Team for a strategic review and a new path forward. The team, led by Simone (Financial Planner) and Raphael (Strategist), immediately addressed the core issues:
- SMSF Setup and Strategy: The Est team assisted the Applicants in setting up the SMSF account and ensuring the entire structure (Trust, Trustees, Bare Trust) was correctly established and compliant for a limited recourse borrowing arrangement (LRBA).
- Property Sourcing and Allocation: Crucially, the team helped the Applicants pivot from the initial property to a more strategically sound investment property (Property B) in Warwick, QLD 4370.
The Superior Outcome
The new strategy and property selection led to a successful and smooth finance approval and settlement process. The key financial metrics for the successful transaction (Property B) were significantly more favorable:
| Metric | Property A (Initial, Withdrawn) | Property B (Est Team Success) | Improvement |
|---|---|---|---|
| Purchase Price | $900,500 | $849,000 | $51,500 Lower |
| Loan Amount | $720,400 | $679,200 | $41,200 Lower |
| Loan-to-Value Ratio (LVR) | ~80% | 80% | Maintained |
| Indicative Interest Rate | Not Finalised | 6.99% | Favorable Rate Secured |
| Indicative Monthly Repayment | Higher | $4,514.17 | Lower Repayments |
Key Benefits Achieved by the Applicants:
- Lower Financial Commitment: The Applicants secured a property with a lower purchase price and a lower overall loan amount, reducing their financial exposure.
- Reduced Repayments: Despite the challenging interest rate environment, the lower loan amount resulted in a lower indicative monthly repayment of $4,514.17, providing better cash flow management for the SMSF.
- Streamlined Settlement: The Est team’s expertise ensured the final approval and settlement process was “easy,” avoiding the complications and delays of the previous attempt.
The SMSF Loan Servicing Strategy
A critical component of the successful strategy was the plan for servicing the loan, which the est. team clearly outlined:
The loan repayments will be serviced by way of mandatory ongoing contributions made from your employer towards super (into the new Cash Management Account) and the current rental income to be received from the property.
This strategy ensures the SMSF’s cash flow is optimized, utilizing both the rental income from the investment property and the mandatory superannuation contributions to meet the debt obligations.
The est. Advantage: Holistic Financial Planning
This case study demonstrates the value of a holistic approach to financial planning and property investment. The est. Financial Team did not just process a loan; they provided a complete solution:
- Strategic Guidance: Correcting the course after a failed attempt and identifying a better investment opportunity.
- Financial Optimisation: Securing a lower loan amount, a competitive interest rate, and lower repayments.
- Structural Expertise: Ensuring the complex SMSF, Bare Trust, and corporate trustee structure was compliant and ready for settlement.
A Note on Borrowing Capacity
It is important to note that for personal finance applications, personal liabilities such as your existing home mortgage, credit card debt, and personal loans are typically excluded from the borrowing capacity assessment for an SMSF loan, as the SMSF is a separate legal entity. This distinction is a key advantage of the SMSF structure when used correctly.
If you are facing complexities in your SMSF property journey or need expert guidance to secure a superior financial outcome, contact the est. Financial Team at est.com.au.