SMSF Property Loans Interest Rate

Does anybody know of a structure to try and get a better interest rate for a SMSF investment property? The best I can currently see is 5.78% which is well above anything outside of SMSF's. I heard something about setting up a bare trust and taking out a loan personally that is tied to the SMSF property but can't find anything to back that up.
Any tips would be appreciated.

Comments

  • Unlikely that you will - many financiers have exited/restricted SMSF LRBA's, and priced accordingly. Best to find a good broker and see what they think - last I spoke with ours, there werent many lenders that were doing them.

    Related party loans are possible, but having done it early days (5 years ago), it is not a simple, straight forward process. ATO came out a few years ago and put further restrictions around related party LRBAs… its probably not something I'd get into again.

  • mortgage ezy

  • Reason why they don't do it anymore is because:

    1. People were being dodgy and buying property and renting it to themselves (a big diversification risk)
    2. Diversification risk even if you are not renting it out to yourself

    Think of it this way. Unless you are paying 100% cash. Say a $500k property. $100k from Superfund and $400k loan. If you had a $1m super balance then it is 10% of capital at risk but don't forget the SMSF is on the hook for the other $400k too.

    $1m cash invested evenly in 10 companies and if one goes bust and market doesn't tank I still have $900k and dividends (if you are in the index even better). If $1m cash in a property and the renter runs off you get zero. If you have to sell after loss on stamp duty and agent fees you'll probably getting back $900k too.

    • Yeah, no doubt I wish I never went down this path but at least my advisor is in jail now. I'm just trying to improve the situation…

      • Did you approach the lender?

        Or is there more money from the SMSF you can tip into reducing the balance. Sometimes lower LTV (risk) means some lenders may offer better rates.

  • Roll back just a couple of years and 5.78% looks good. NB SMSF loans are now hard to get and are considered a commercial arrangement so not to be compared with residential rates, lender has limited recourse/recovery options. For related party loans, ATO makes you charge a current commercial rate (currently 5.94%)or be declared a non complying fund. So if you can (a) get a loan and (b) are paying less than the declared commercial rate, dont worry…be happy!

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