Keen Property Investors.

Daniel and Monique are both in their early fifties and keen investors who have diversified investments. They have their home, one residential investment property and a share portfolio. They have an existing SMSF which has investments and cash of around $310,000. They are employed and their super contributions from their salaries goes into this fund.

They would like to buy a commercial property, but they do not have sufficient equity at the moment in their residential properties and wanted to investigate the option of purchasing the commercial property in their SMSF.

The Solution

In their SMSF they have total investments, $100,000 is in shares which they don’t want to sell at the moment. This leaves them $210,000 in cash to put towards a property. The bank will provide them with a loan up to 65% of the value for a commercial property. If they wanted to purchase a residential property then the banks would provide a loan up to 80% of the value for a residential property.

Daniel and Monique found a tenanted commercial property to buy for $500,000. There was no GST payable on the purchase of this particular property. They borrowed $325,000 and contributed $205,000 from the cash in their super fund. Their contributions comprised 35% of purchase price – $175,000 plus approximately $30,000 for stamp duty and set up costs. This left Daniel and Monique’s SMSF with liquid funds of $105,000.

The Outcome

The rent from the property and other income in the fund covers the loan payments. Daniel and Monique have added to their property portfolio without having to use equity in their existing portfolio or contribute any cash from outside the super.

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