When setting up a Self-Managed Super Fund (SMSF) to purchase property, one of the biggest obstacles investors face is securing financing, particularly if the SMSF is newly established. A lack of super contributions and limited fund history can make it difficult to meet traditional lender requirements.
In late 2023, Tom, a determined investor, approached Zenith for assistance with purchasing an investment property through his newly established SMSF. Despite having a clear investment strategy and strong financial acumen, Tom faced significant challenges due to his SMSF’s short history and minimal contributions. His goal was to secure financing for a property purchase, ideally aiming for a loan-to-value ratio (LVR) of 80%.
This case study outlines how Zenith helped Tom navigate the complexities of SMSF lending and secure the right financing for his property purchase.
The Challenge
Tom, an experienced property investor, had successfully built a portfolio of residential properties through his personal investments. Eager to diversify his wealth-building strategy, he decided to set up an SMSF to acquire a property within the fund. However, the challenges he faced with a newly established SMSF were considerable:
- Minimal SMSF Contributions: As his SMSF had only been set up recently, it lacked substantial contributions or long-term history. This made it difficult for most lenders to assess the fund’s financial stability.
- Lack of SMSF Track Record: With a new SMSF, the usual benchmarks for borrowing—such as established fund performance or history of contributions—were not in place, which made it harder to meet conventional lending criteria.
- Regulatory Compliance: As always with SMSF property purchases, Tom needed to ensure the transaction complied with superannuation laws, aligning with his SMSF’s investment strategy while also being tax-effective.
Tom’s situation was more complicated due to the age of the SMSF, but with the right lender and strategy, he was determined to make it work.
Our Approach
At Zenith, we understood that Tom’s situation required a tailored solution. Rather than applying conventional lending criteria, we carefully selected a lender who could accommodate the unique challenges of a newly established SMSF. Here’s how we approached the situation:
- In-Depth SMSF Review
We began by working with Tom to ensure his SMSF fully complies with ATO regulations. This involved reviewing the fund’s trust deed, investment strategy, and ensuring everything was set up to allow for property investment. The goal was to ensure that the property acquisition aligned with his fund’s strategy, ensuring both compliance and future growth.
- Identifying a Suitable Lender
Given the unique challenges of Tom’s newly established SMSF, we recognised that most lenders would likely be hesitant due to the minimal contributions and short track record. However, we identified a lender offering specialised products tailored for newly established SMSFs. This product was designed to provide flexibility and support for investors in Tom’s position, helping him achieve the 80% LVR despite the fund’s limited history.
- Advising on Property Selection and Compliance
While Tom had identified a potential investment property, we worked closely with him to ensure it met SMSF borrowing guidelines. SMSF loans have specific criteria regarding the types of properties that can be purchased and the property’s use within the fund. After a detailed review, we confirmed that the property met all regulatory and lending criteria.
The Process
Once the lender was chosen and the loan structure established, we moved forward with the application process. Zenith handled all the necessary steps to ensure a smooth and efficient application:
- Documentation Preparation: We gathered all essential documentation, including the SMSF’s compliance documents (trust deed, investment strategy, etc.), as well as Tom’s personal financial information and tax returns.
- Property Valuation: To secure the 80% LVR, a property valuation was conducted. We coordinated with independent valuers to ensure the property’s market value met the lender’s criteria. The valuation report was key in moving forward with the loan approval process.
- Ongoing Communication: Throughout the process, Zenith acted as the central point of contact between Tom, the lender, and all relevant parties. We ensured the application was moving smoothly, responded to queries quickly, and addressed any concerns raised by the lender promptly.
The Outcome
Thanks to Zenith’s expertise and tailored approach, Tom was able to successfully secure 80% LVR financing for his SMSF property purchase, despite the challenges posed by his newly established fund. The lender’s tailored product, designed specifically for situations like Tom’s, enabled him to achieve his financing goals with manageable terms.
The property, now added to Tom’s SMSF, not only adhered to superannuation regulations but also positioned the fund for future growth. With an eye on capital appreciation and rental income, Tom was able to diversify his investment strategy, ensuring both his SMSF and personal wealth were aligned for long-term success.
Key Takeaways
This case highlights several important considerations for SMSF property investors, particularly those dealing with newly established funds:
- Lender Specialisation: Finding a lender with a tailored product for newly established SMSFs is crucial. Some lenders offer specific loans that cater to clients in Tom’s position, overcoming the challenges of minimal contributions or fund history.
- Structured Planning: Even with a new SMSF, careful loan structuring and property selection can enable investors to achieve high LVRs while remaining compliant with superannuation regulations.
- Expert Guidance: Navigating SMSF property purchases can be complex, especially with a limited fund history. Working with experts who understand the intricacies of SMSF lending can ensure a smoother process and better outcomes.
If you’re considering purchasing a property through your SMSF and facing similar challenges, Zenith can help. Our team of experts can assist with structuring your SMSF investment, finding the right lender, and ensuring your purchase aligns with your long-term financial goals. Contact us today to learn how we can help you achieve success in SMSF property investment.
