We strongly recommend that you read these FAQs before you proceed with applying for a Limited Recourse Borrowing Arrangement (LRBA) loan.  If in doubt, consult your financial adviser or lawyer.

Also, checkout our LinkedIn page for our latest blogs on SMSF loans.

6 Key steps in purchasing an investment property with an SMSF Loan

1. Review your Investment Strategy.

The first and often overlooked step in purchasing an investment property through your SMSF is to determine if the investment satisfies your investment strategy.  Your investment strategy should be documented and signed off by the trustee.  If the investment doesn’t meet your investment strategy, then consider if the investment is appropriate for the fund or amend your investment strategy as required.

With respect to an investment in property involving an SMSF loan, an investment strategy should take into account a) the ability of the investment to generate sufficient income to allow your fund to meet its ongoing financial commitments, b) the risks involved in buying, holding and realising the property, c) the future liquidity requirements of the fund to ultimately pay member benefits, and d) other potential risks that might arise from inadequate asset diversification.  Lack of asset diversification does not invalidate an investment strategy so long as the trustee has considered the risks and mitigants arising from a lack of diversification.  If you are unsure about how to review your investment strategy it is a good idea to talk to your financial adviser.

2. Is your SMSF allowed to borrow?

This can be simply determined by looking at you SMSF trust deed or asking your accountant or SMSF administrator.  If the deed does not permit borrowing, then a straight-forward amending deed may be required.  Speak to your accountant or SMSF administrator.  Getting this sorted out upfront will ensure a smooth settlement process later.

3. Determine your borrowing capacity

Before researching a suitable property investment, determine how much your fund can potentially borrow.  This will be based on the current size of your fund, other LRBA investments and the estimated valuation and postcode of the property you seek to purchase.  Use SuperLX’s SMSF Loan Analyser to do this quickly, accurately and for free.

4. Establish your bare trust

See FAQ.

5. Identify the property and negotiate the Contract of Sale

At this point it is a good idea to seek an indicative approval through SuperLX’s SMSF Loan Analyser.  This is a quick process and should not delay your negotiations with the vendor.

At a minimum you should have the contract of sale reviewed by your conveyancer before you sign it and ensure it is “subject to finance”.  An indicative approval is not a final approval and will not satisfy the “subject to finance” condition.

If you intend to sign a contract without a “subject to finance” condition you will need to get comfortable that your SMSF has the capacity to purchase the property with no finance or a lower amount of finance than you originally intended.

The purchaser on the Contract of Sale should be the Bare Trust trustee.  Please discuss this with your conveyancer or solicitor.

See these: FAQ and FAQ.

6. Obtain your final finance approval

If you obtained an indicative approval letter, this letter should set out a list of conditions that need to be satisfied before the lender will provide a final approval.  These usually include:

  • Obtaining a valuation to the satisfaction of the lender. SuperLX or the lender will arrange for the valuation to be done.
  • Providing the lender with supporting documents that confirm the information you provided to obtain the indicative offer. This typically includes recent financial statements for your fund, trust deeds of the fund and bare trust, the contract of sale and any supporting financial information required of the members such as employment confirmation, payslips and SMSF contribution statements.
  • Verification of your identity. SuperLX will attend to this.

At this point your contract of sale becomes unconditional.  The steps remaining now are to work with your conveyancer, the lender’s solicitor and the vendor’s conveyancer to prepare for settlement of the property.

Who is SuperLX?

  • Super Loan Exchange Pty Ltd (ACN 615 820 052) (SuperLX) is an independent private company not owned by or affiliated with a bank or lender.
  • Super LX holds an Australian Credit Licence (511265) and is authorised to engage in credit activities other than as a credit provider.
  • SuperLX is a Corporate Authorised Representative (#1274020) of Super Group Holdings Pty Ltd (AFSL #246309).

What does SuperLX do?

We help trustees arrange Self Managed Superannuation Fund (SMSF) loans, also known as Limited Recourse Borrowing Arrangements (LRBAs).

SMSF Loans are complex to structure and involve specialised credit assessments and approval processes.

SuperLX has developed sophisticated tools to analyse an SMSF’s accounting data to form a preliminary assessment on its ability to borrow against a prospective investment property.

SuperLX will assess the application against the criteria of our lenders, identify the lenders for which the application would be eligible, and provide a summay of the key terms offered by those lenders.

The borrower can then select their preferred lender, and SuperLX will prepare an application form on their behalf, significantly simplifying the task for the trustee (or their adviser) and increasing the prospect of securing approval for an LRBA loan.

SuperLX has a limited panel of SMSF loan lenders. This is because many traditional lenders, such as banks, do not provide SMSF loans. In addition, SuperLX must have agreed procedures with a panel lender in order to determine the lender’s relevant lending criteria and to execute “straight-through” processing of a loan application.

We can set up the Bare Trust for your SMSF for a separate fee.

What are the benefits of applying for a loan with SuperLX?

SuperLX provides an easy to use, one-stop service to:

  1. Assess your SMSF’s ability to borrow.
  2. Check whether your circumstances meet lenders’ eligibility criteria.
  3. Provide you with a choice of lenders where available.
  4. Prepare an application for a loan with your selected lender, which you can electronically sign and submit.
  5. Guide you in selecting parties to assist you in establishing the legal and compliance arrangements necessary to borrow through your SMSF.
  6. We can set up your Bare Trust, or alternatively you can use your trusted legal adviser or accountant.
  7. Assist you with the loan approval process up to the point you are ready to settle on your property.

We will ensure that you are fully informed about your costs and exactly where you are up to in the process at all times, utilising our Borrower Portal.

Our aim is to make the process as easy and worry-free as possible, leaving you to focus on finding the right property to invest in.

We explain our services in more detail in the Credit Guide we provide you when you apply for a loan.

What is an LRBA?

A limited recourse borrowing arrangement (LRBA) is a specialised loan in which the lender’s recourse to the superannuation fund (the borrower) is limited to the mortgaged property. This differs from an ordinary mortgage where individual borrowers remain liable for the full amount of the borrowing even where they have surrendered the mortgaged property to the lender.

However, in the case of LRBAs lenders are permitted to require personal guarantees from the members of the SMSF to protect their interests.

An LRBA is the only way an SMSF can access mortgage based borrowing to acquire an investment asset. For simplicity and clarity throughout our communication we refer to LRBAs as SMSF Loans.

Who can apply for an SMSF loan with SuperLX?

Any Australian SMSF can apply for an SMSF loan with SuperLX.  Our lenders structure their loans to comply with the rules governing borrowing by SMSFs.

To utilise an SMSF loan the SMSF is required to establish a Bare Trust to hold the mortgaged property.

We assess the SMSF’s capacity to borrow on a range of criteria including:

  1. The value of the property to be acquired.
  2. The loan to valuation ratio (LVR).
  3. The SMSF’s projected income (including rent, income from other investments, contributions), and
  4. The SMSF’s projected expenses (including fees and charges, loan repayments, tax and benefit payments).

We assess the SMSF’s cash flow against a number of scenarios.  In addition, the lender may look at further criteria before approving the loan and may require additional documentation in support of the application.

Who are the lenders?

We currently are able to assist you with loans from Granite Home Loans, La Trobe Financial and Thinktank.

Granite Home Loans was established in 2017.  With over 40 years combined mortgage industry experience between the co-founders, Granite is backed by one of Australia’s leading non-bank funding programs.  In addition to traditional mortgage products, Granite offers competitive SMSF loans for residential and commercial properties.  Read more about Granite Home Loans at https://www.granitehomeloans.com.au/about-us/

La Trobe Financial offers both residential and commercial property loans to SMSFs.  Founded in 1952, with over A$7.2 billion Assets under Management (AUM), La Trobe Financial is Australia’s premium non-bank specialising in credit and wealth management. With over 65 years’ experience, La Trobe Financial has managed over $16 billion of retail and institutional investment mandates. La Trobe Financial is 80% owned by Blackstone, the world’s largest alternative asset manager, with over US$521 billion of AUM. Read more about La Trobe Financial at http://latrobefinancial.com.au/About

Thinktank was founded in 2006, with the aim of providing a superior range of borrowing options and level of service in meeting the needs and preferences of SME businesses and commercial property investors. A dozen years on and Thinktank has become Australia’s leading independent commercial property lender through offering our borrowers a genuine alternative to the banks.

Thinktank is committed to fairness, transparency and professionalism in all that it does do across all of its relationships with borrowers, introducers, professional service providers, institutions and government. You can read more about Thinktank at https://www.thinktank.net.au/about-us/

Liberty Financial is a leading financial services business with operations across Australia and New Zealand. Liberty has consistently applied technological advances to pursue multiple specialty finance markets with its customised risk management and operational practices. You can read more about Liberty at https://www.lfgroup.com.au/about-us/about-liberty

What is a Bare Trust?

A Bare Trust is a holding trust set up with the sole purpose of holding the mortgaged asset on behalf of the SMSF.  This ensures the asset is segregated from the other assets of the fund to comply the law.  The Bare Trust trustee should be the party appearing on the contract of sale as the purchaser of the property.  We can set up a Bare Trust for you for a separate fee.

Is SuperLX a mortgage broker?

SuperLX holds a credit licence to engage in credit activities, but we only specialise in SMSF loans, and focus on the facilitation of the process of applying for a loan and establishing the legal structures and documentation required by the regulations.

We are currently able to offer loans from at least four lenders and may increase the number of lenders in the future. The number of lenders in the market is relatively limited compared to standard mortgage lending.

Because we assess your borrowing scenario using the Lenders’ criteria we are able to advise you whether any proposed loan meets the eligibility rules of our lenders. Where in our opinion you would be eligible for a loan from several lenders we provide you with a choice and with infomation to guide your decision.

When we assess your application, we use objective analysis based on the information you provide us about your SMSF and other factors.  We do not assess your broader individual circumstances or objectives, the suitability of the investment for you, or the relative merits of the proposed property compared to other properties or investments.

We explain our services in more detail in the Credit Guide we provide you when you apply for a loan.

Does SuperLX provide financial advice or investment advice?

SuperLX does not provide financial or investment advice in relation to the loans we arrange or the investments which you choose to make.  We do provide guidance as to your eligibility with potential lenders and some information to assist you in choosing between competing offers.

Our objective is to make the borrowing as simple as possible, once you have decided to invest in property using an SMSF loan.  In doing this we try and provide you with as much information as you need to make an informed decision about entering into the borrowing, and to make the process as transparent and easily understood as possible.

When we do provide advice about borrowing it is general advice only and does not take into account your individual circumstances and objectives.  Before acting on any general advice contained in this website or the publications we provide you should have regard to its appropriateness to your particular circumstances.

In providing general advice Super LX is acting as a Corporate Authorised Representative (#1274020) of Super Group Holdings Pty Ltd AFSL 246 309.

We explain our services in more detail in the Credit Guide we provide you when you apply for a loan.

How much does it cost me to use SuperLX’s services?

SuperLX is remunerated by the lender, at no cost to you.  We do not charge you any fees for our service.

SuperLX may receive up front and trailing fees from the lender if your application is successful.  We may also receive a referral fee from a conveyancer who we refer you to, and a referral fee from our document provider.  You are under no obligation to use these additional services when you apply for a loan through SuperLX. We will ensure that you are fully informed about your costs and exactly where you are up to in the process at all times, utilising our customer portal.

We explain our services in more detail in the Credit Guide we provide you when you apply for a loan.

If you ask us to set up your Bare Trust we will advise you of a separate fee for that service.

What fees will I have to pay to get a loan?

The following fees are typically payable to get a loan:

  • A valuation fee, payable once the lender has conditionally approved your loan.
  • An application fee, payable from funds at settlement.

These fees will be advised to you once the lender makes you an indicative offer, which you are under no obligation to accept.

In addition, you should have regard to the following fees and charges:

  • The cost of establishing the Bare Trust for the SMSF loan, including a corporate trustee for the Bare Trust, and agreements between your SMSF trustee and the trustee of the Bare Trust.  We can organise this for you with our fully integrated and pre-approved expert lawyers or you have the option to make your own arrangements, which will be subject to approval by the lender.
  • Conveyancing costs and legal fees, including legal fees that may be incurred by the lender in relation to your loan which they will charge to you.
  • Stamp duty.

I’ve completed the application process. What happens next?

Once your application has been electronically signed it is forwarded to the lender you have chosen for indicative approval.  Once approved, you will then receive an email specifying any further requirements the lender has and providing further details including confirmation of the applicable interest rate and fees associated with the loan.  You will then need to accept the offer and pay the valuation fee to the lender.  Once your property has been valued and the lender’s requirements satisfied, they will forward you a final offer, together with loan documents and other paperwork, and settlement arrangements are then made. We recommend appointing a solicitor to advise you on the loan documentation and settlement process. SuperLX is not able to advise you on this.

Can I bid on a property before getting final approval for a loan?

We recommend that if you are considering an SMSF loan you should use our SMSF Loan Analyser before entering into negotiations with a vendor.  The Loan Analyser will give you an indication of how much your SMSF can borrow and eligibility.  The Loan Analyser will not provide you with a commitment from a lender.

If you require a higher degree of certainty that your SMSF will be able to borrow, we recommend that you proceed to apply for an indicative approval once you have used the Calculator.  Using our integrated service, the lender will be able to respond to you within 1 to 2 days with an Indicative Offer which will provide you with the conditions you must satisfy to be provided a committed offer of finance.  The Indicative Offer is not an irrevocable commitment to lend, but it is a good indication from the lender that if you satisfy their conditions, they will lend to you.

If you are considering an off the plan purchase a lender is unlikely to provide you with an Indicative Offer or Final Approval until they can perform a full valuation of the property.  This is not feasible until the property developer has completed the development and provides permission to the lender to undertake a valuation.  Therefore, your SMSF bears the risk that it will be able to obtain finance for the acquisition, which could be a period of some years between purchasing off the plan and settling the acquisition.

We will work with you to satisfy the conditions of the lender.

We strongly recommend that you establish a Bare Trust before you bid on a property, exchange contracts with a vendor or purchase off the plan.  We set up the Bare Trust for you or you can use your trusted legal adviser or accountant.

We strongly recommend that you engage a conveyancing lawyer before you bid on a property, exchange contracts with a vendor or purchase off the plan.

When can my SMSF exchange contracts?

There are complex rules governing the structuring of the SMSF loan and how these arrangements are reflected on the contract for the sale of the property.  It is essential that you consult with a conveyancer or lawyer experienced with SMSF loans in your state to ensure that the contracts are properly drawn up to reflect the role of the Bare Trust in holding the property on trust.  The failure to properly establish the Bare Trust and reflect the Bare Trust on the contract for sale could expose the SMSF to additional costs including double stamp duty.