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Inside SMSF Borrowing And What Lenders Really Want · My Accounting Advantage

• 0:03
  Speaker 1: Hello and welcome back to the podcast My Accounting Advantage.
• 0:07
  Speaker 1: Today is episode 28, and we're looking at the inside of the self-managed super funds.
• 0:14
  Speaker 1: Lending, what banks really look for.
• 0:17
  Speaker 1: My, we have such a big topic that we're going to cover today, and it's connected to all the ones we've done in the last few weeks.
• 0:24
  Speaker 1: In a nutshell, we're even going to bring in a very special guest to assist us with depth of knowledge today.
• 0:31
  Speaker 1: But take us into what we can expect from today's programme.
• 0:34
  Speaker: Well, what we can expect is the continuance from last week, which we talked about the limited recourse borrowing arrangement and how it works within the SMSF environment.
• 0:46
  Speaker: And today we dive into the borrowing part because that's what it is.
• 0:51
  Speaker: It's the type of special lending within the SMSF.
• 0:56
  Speaker: And how it works is very different to the typical residential loans and any other loan because it's a very specialized area.
• 1:05
  Speaker 1: My what's been really interesting since the show started is we're bringing facts and evidence.
• 1:10
  Speaker 1: Yeah.
• 1:11
  Speaker 1: People are making decisions out there versus Facebook posts.
• 1:14
  Speaker 1: Things they're hearing in social media.
• 1:16
  Speaker 1: The amount of people that have said to me, Lee, you can't borrow from a self-managed superfund anymore.
• 1:20
  Speaker 1: It's all over.
• 1:21
  Speaker 1: And I go, where did you get that from?
• 1:23
  Speaker: Yes, that's right.
• 1:24
  Speaker: So we want to clarify that it's still okay to borrow under a self-managed superfund, but the rules have changed because recently uh the government has basically stopped SMSF from borrowing and purchase residential properties, which is very interesting.
• 1:45
  Speaker: They're just trying to carve out, you know, all the opportunity to invest.
• 1:51
  Speaker: Um, you know, whether it's investors, mum and dad or SMSF that want to actually purchase investment properties.
• 2:01
  Speaker: So they just want to limit the investment to commercial within the SMSF, which is called real properties.
• 2:09
  Speaker: So from the 10th of August 2026, SMSF are no longer allowed to borrow under an LRBA, which is limited recourse borrowing arrangement, to purchase residential properties.
• 2:23
  Speaker: And that same goes for uh existing properties and also new properties.
• 2:29
  Speaker 1: This is a very sad moment for all the consumers I get to assist and speak to.
• 2:34
  Speaker 1: They don't always understand shares, but they can walk past a property, look at it, and think, okay, that's what I'm working for.
• 2:40
  Speaker 1: It gives us a rental return, I can pay it off, and money comes back in.
• 2:45
  Speaker 1: And that's clarity for some people.
• 2:46
  Speaker 1: Yeah.
• 2:47
  Speaker 1: And you've got to have an understanding of investment.
• 2:50
  Speaker 1: Whereas in commercial, commercial is a fantastic investment, but it's a better investment if you're going to be your own tenant.
• 2:56
  Speaker 1: It's a great investment if your son runs a business and you think, we'll invest and buy the shop.
• 3:01
  Speaker 1: And if anything goes crazy, we can cover you for a moment.
• 3:05
  Speaker 1: You need a reason to invest.
• 3:06
  Speaker 1: And the fact they're taking residential out, I just don't understand it.
• 3:10
  Speaker: Yeah, I think it's just to reduce the demand in the market, and that's their logic.
• 3:16
  Speaker: But to me, you know, you've got to look a little bit more wider in terms of in investment options.
• 3:23
  Speaker: And also those who have worked and sacrificed all their lives to, you know, build their property portfolio as well, that's affecting them because there's m a massive reduction in demand for the property.
• 3:38
  Speaker: So the property prices, as you know, is actually coming down.
• 3:42
  Speaker 1: Yeah, we're seeing close to 30% across the nation, which is some suburbs, yeah.
• 3:47
  Speaker 1: And how many billions of dollars in stamp duty is that?
• 3:50
  Speaker 1: That's just gone missing instantly.
• 3:52
  Speaker 1: So that causes concern.
• 3:54
  Speaker 1: But who's gonna be the rental providers of the future?
• 3:57
  Speaker 1: All these kids, all the university, everyone's got to live somewhere.
• 4:01
  Speaker: But if people aren't providing rentals and they can't just buy new because new's not happening fast enough, no, not especially when there's so many red tapes and hoops that you've got to jump through with local council, etc.
• 4:15
  Speaker: It's unbelievable.
• 4:17
  Speaker 1: Well, let's get deep into our topic and we're gonna bring in Luke Talbot, our loan specialist, to bring some clarity on this.
• 4:24
  Speaker 1: Luke, welcome to the program.
• 4:25
  Speaker 1: Hi.
• 4:27
  Speaker: Hi, welcome back, and thank you for um coming on the show today.
• 4:32
  Speaker: No worries.
• 4:33
  Speaker: I'll just fire up the first question that's been on everyone's mind.
• 4:38
  Speaker: How has the new LRBA law changed the lending landscape?
• 4:42
  Speaker 2: Look, uh, SMSF um and in the investment space has changed.
• 4:47
  Speaker 2: You can still buy a residential in SMSF.
• 4:51
  Speaker 2: The problem is you've got to cash fund it yourself through the SMSF.
• 4:54
  Speaker 2: You can't borrow for it.
• 4:55
  Speaker 2: The biggest change is obviously what security and what purpose lending can be used for within an SMSF arrangement.
• 5:02
  Speaker 2: So the biggest thing is commercial.
• 5:04
  Speaker 2: It has to be a specific type of security.
• 5:07
  Speaker 2: It can't be just vacant commercial land and that type of stuff.
• 5:11
  Speaker 2: It needs to be an asset that is income deriving.
• 5:15
  Speaker: And um so that's the definition of the real property, isn't it?
• 5:18
  Speaker: Is just to, you know, provide commercial aspects.
• 5:23
  Speaker: Yeah.
• 5:23
  Speaker: So that that's where the lending is limited now to just commercial, real properties.
• 5:30
  Speaker: But the definition of real property in this case is the usage of the property.
• 5:36
  Speaker: So the property that I want to clarify, it can be in R2 residential, but if it's being used as a commercial property to house a business, then it's still qualified because it's per use.
• 5:50
  Speaker 2: Yeah, so the statutory test is real property used wholly and exclusively in one or more business for business use.
• 5:57
  Speaker: Yeah.
• 5:57
  Speaker: So um, since the 10th of August 2026, the government stopped RIBA lending pretty much.
• 6:05
  Speaker: Is that is that right?
• 6:06
  Speaker 2: Yes, for residential.
• 6:07
  Speaker: Yeah, for residential for SMSF.
• 6:09
  Speaker 2: Correct, for new purchases.
• 6:11
  Speaker 2: You can still borrow in an SMSF for residential if you've already owned it and you're doing a refinance.
• 6:17
  Speaker 2: So you can still refinance existing um held debts and structures and things like that.
• 6:22
  Speaker 2: You just can't borrow for new acquisition in residential.
• 6:27
  Speaker: Yeah.
• 6:27
  Speaker: So have you had many inquiries since then about the changes?
• 6:33
  Speaker 2: It's because it's only just happened on the 10th of August, and I know that was a couple of weeks ago.
• 6:36
  Speaker 2: The biggest thing is getting everyone's strategy in SMSF and borrowing and investing in SMSF isn't the same as, oh, look, I wake up one day and I saw a property down the road and what did I buy it.
• 6:46
  Speaker 2: There's just a lot of moving parts in it, right?
• 6:49
  Speaker 2: And so, yeah, we are seeing it, but it's only just now is that stuff coming through because by the time your accountant looks at it, by the time your financial leader looks at it, by the time you get the legal structure in place, yeah, that now is only just now coming to fruition with these changes.
• 7:03
  Speaker: So I think a lot of listeners don't really understand how the SM SMSF lending different from the mainstream lending.
• 7:13
  Speaker: So can you explain the process?
• 7:16
  Speaker 2: So there's really three credit um sort of assessments that occur with an SMSF.
• 7:22
  Speaker 2: So it's the borrower or the fund itself, um, the property and then the structure.
• 7:26
  Speaker 2: Okay.
• 7:26
  Speaker 2: So the borrower or the fund is the the SMSF itself is the borrower.
• 7:31
  Speaker: Yeah.
• 7:32
  Speaker 2: It doesn't actually hold the property though.
• 7:33
  Speaker: No.
• 7:34
  Speaker 2: A um a bear trust.
• 7:36
  Speaker: Yeah.
• 7:36
  Speaker 2: Property trust, custodian trust, whatever that that terminology is used.
• 7:40
  Speaker 2: Yeah.
• 7:40
  Speaker 2: Essentially it's a it's a property trust.
• 7:42
  Speaker 2: Holds the property and pledges it to the SMSF for use as security.
• 7:46
  Speaker 2: Yeah.
• 7:46
  Speaker 2: So the borrower itself is the fund.
• 7:48
  Speaker 2: You've got so there's again, there's multiple entities of it.
• 7:50
  Speaker 2: Yeah, yeah.
• 7:51
  Speaker: No, we talked about that last episode.
• 7:53
  Speaker: So yeah.
• 7:54
  Speaker 2: The the property itself, then, um, is a a definite credit criteria now.
• 7:58
  Speaker 2: So they understand they want to understand uh the the the market yield or the property or the rental return, they want to understand the zoning, they want to understand the usage, you know, has it previously been rented out, they want to understand all that sort of stuff.
• 8:11
  Speaker: So what you're referring to is that's the bank requirement.
• 8:14
  Speaker: So in order for someone to obtain or you know, doing like ask you to do the borrowing capacity assessment for the SMSF, what would be um the first thing that you look for?
• 8:28
  Speaker 2: So there's multiple things we we we have to do, right?
• 8:31
  Speaker 2: There's there's a multiple questions we have to do.
• 8:33
  Speaker 2: Does the property structure qualify as uh the a borrowing requirement?
• 8:37
  Speaker 2: BRP.
• 8:38
  Speaker 2: Yeah.
• 8:38
  Speaker 2: Acceptable security.
• 8:40
  Speaker 2: What is their the yield on that?
• 8:42
  Speaker 2: What is the members' contribution to the SMSF or employee contributions to the SMSF?
• 8:47
  Speaker 2: Yeah.
• 8:47
  Speaker 2: They they look at how much liquidity is in the SMSF.
• 8:51
  Speaker 2: So liquidity is how much um cash cash have they got in the business both now but also post-settlement.
• 8:57
  Speaker 2: So there is some policy requirements in there that you need to have a certain amount of cash after you've settled on that property.
• 9:02
  Speaker 2: So it's just a lot of little moving.
• 9:04
  Speaker: Yeah.
• 9:05
  Speaker: So what would be the deposit, like well, the cash contribution that the SMSF need to have, like in percentage, before they can look at reaching out to you and this is the hard bit.
• 9:19
  Speaker 2: So SMSF lending is not the same as residential lending for mom and dad investors going out to buy buy a house down there.
• 9:24
  Speaker 2: Yeah.
• 9:24
  Speaker 2: Okay.
• 9:25
  Speaker 2: So the SMSF lenders that are in this space, so there's not a lot in this space anymore.
• 9:29
  Speaker 2: Yeah.
• 9:29
  Speaker 2: Right.
• 9:30
  Speaker 2: So we'd let's be let's be very clear on that.
• 9:32
  Speaker 2: They they will borrow, they'll lend up to um some will lend up to 75% of the value of the property, some will end up to 80% of the value of the property.
• 9:40
  Speaker 2: Some will reduce that percentage based on the postcode.
• 9:43
  Speaker: Right.
• 9:44
  Speaker 2: Based on the zoning of that property, based on the usage of that property, if it's an industrial warehouse versus a just a commercial.
• 9:51
  Speaker 2: Um, so you've got to be there's no just like there's no cookie cutter, right?
• 9:55
  Speaker 2: That's right.
• 9:55
  Speaker 2: So it's no cookie cutter.
• 9:57
  Speaker 2: That's why you need to have someone evaluate what your position is and work out a strategy.
• 10:02
  Speaker 2: This is not something where, hey guys, I've bought a property.
• 10:06
  Speaker 2: Can you now fund it for me?
• 10:07
  Speaker: Okay.
• 10:07
  Speaker: So basically the process is once they got advice from the accountant or the financial planner, well, then the next step is to reach out to a um mortgage broker like you, like specializing in um SMSF borrowing, and then you start their assessment.
• 10:23
  Speaker 2: Yeah, so so like I said, you can borrow up to 75-80% of the value of the property, right?
• 10:28
  Speaker 2: So you still need 20% of the property.
• 10:30
  Speaker: 25 to 30.
• 10:31
  Speaker 2: You've got to factor in stamp duty.
• 10:32
  Speaker 2: SMSF borrowing or or structures are not the same as just going out and borrowing again and borrowing a property.
• 10:38
  Speaker 2: You need to have the structures in place.
• 10:40
  Speaker 2: Yeah, it's getting foster a few grand to have this all set up properly, right?
• 10:44
  Speaker 2: There is still application fees, there's valuation fees, right?
• 10:47
  Speaker 2: Different to residential lending.
• 10:49
  Speaker 2: The the fees within a lender could be a couple of grand as well.
• 10:53
  Speaker: Yeah, what hits me is the establishment fee.
• 10:56
  Speaker: Yep.
• 10:56
  Speaker: Yeah.
• 10:56
  Speaker: For for the loan.
• 10:58
  Speaker 2: So again, this is lender specific.
• 11:00
  Speaker 2: Some lenders will charge stupid fees and some will will actually couple of grand.
• 11:06
  Speaker: One percent.
• 11:06
  Speaker: Yes.
• 11:06
  Speaker: You usually that's that's at least one percent, which is a lot.
• 11:10
  Speaker: Yep.
• 11:11
  Speaker 2: So you need the legal costs, you need the valuation lender costs, you need the holding trust and the SMSF establishment costs.
• 11:16
  Speaker 2: There's potentially GST considerations depending on on the type of property and the transaction itself.
• 11:21
  Speaker 2: And then again, you like I said before, you still might need some post-settlement liquidity.
• 11:26
  Speaker 2: So some lenders, first markets it itself, yeah, they want 5% liquidity of SMSF value sitting in cash post-settlement.
• 11:34
  Speaker 2: So they'll actually do the calculation, work out stam tuning costs, and work out whether or not you've got enough.
• 11:39
  Speaker 2: If you don't have enough, nah, deal's dead.
• 11:40
  Speaker: Yeah.
• 11:41
  Speaker: Okay.
• 11:41
  Speaker: So the next question I have is which banks are actually lending to SMSF at the moment?
• 11:47
  Speaker: Because, you know, you and I know that the big fools don't play in this space anymore.
• 11:52
  Speaker 2: Yep.
• 11:52
  Speaker 2: So let me let me qualify something here, right?
• 11:54
  Speaker 2: And and this is my opinion.
• 11:56
  Speaker 2: The big boys got out of this 12, 11, 12 years ago.
• 12:00
  Speaker 2: Okay.
• 12:00
  Speaker 2: And the reason, the the primary reason they got out of this was there was a worry in the property market that people were creating a false market because SMSF in Resi was such a big thing 12, 13 years ago, right?
• 12:12
  Speaker 2: Everyone was buying property in SMSF and it was creating a false market.
• 12:15
  Speaker 2: And the government and the regulatory um bodies were worried that people's retirement fund could get smashed if there was a reality check in the property market.
• 12:24
  Speaker 2: Okay.
• 12:24
  Speaker 2: And so they handbraked it, right?
• 12:26
  Speaker 2: And effectively, that's now what the government is now pushing harder now.
• 12:30
  Speaker 2: So for me personally, I understand it's going to hurt some investors here, but I actually understand why they're doing it.
• 12:35
  Speaker 2: You've still got if if everyone's pulling their money out of these industry funds and sticking in SMSF and then trying to buy all this property, and then then there's a property handbrake because what was happening at the moment, and you've got negative equity, people can't retire.
• 12:47
  Speaker 2: And then is there going to be more pressure on the government, more pressure on pensions, more pressure on social.
• 12:51
  Speaker 2: Yeah.
• 12:52
  Speaker 2: So I understand why they're doing it.
• 12:54
  Speaker 2: So back on lenders, you've got you've got about half a dozen that are playing in this space.
• 12:58
  Speaker 2: So the likes of Pepper Money, Liberty, Latrobe, First Mac, Red Zed.
• 13:02
  Speaker 2: Yeah.
• 13:02
  Speaker 2: So there's so there's there's a few in there.
• 13:04
  Speaker 2: And again, some will charge higher fees, some will borrow, lend you, yeah, 75% to 80%.
• 13:09
  Speaker 2: Yeah, so there's there's there's definitely a few out there.
• 13:13
  Speaker: Yeah, so there's still options out there, just not the big fours and the typical banks that would lend, you know, for the the standard loan.
• 13:22
  Speaker: And and these banks know that, right?
• 13:24
  Speaker: Yeah, so they're charged.
• 13:26
  Speaker 2: Yeah.
• 13:27
  Speaker 2: Interest rates.
• 13:28
  Speaker 2: Don't don't come to a broker going, yep, cool.
• 13:30
  Speaker 2: Uh, you know, I've done some chat GPT numbers and um, you know, borrowing at six and a half percent.
• 13:36
  Speaker 2: Yeah, it's not that.
• 13:37
  Speaker 2: If you're gonna borrow at eight, eight percent, and if you're gonna borrow at 80% for the commercial property, you are gonna be looking in the eights.
• 13:43
  Speaker 2: Yeah.
• 13:44
  Speaker: Yeah.
• 13:44
  Speaker: Yeah.
• 13:45
  Speaker: So that there are ways around it, which we've done.
• 13:48
  Speaker: You know, if you the, you know, the the members of the self-nessed super funds actually have equity in their home, they can actually borrow against um the equity and then also lend it to the self-nessed super funds.
• 14:04
  Speaker 2: So it's a two two application process.
• 14:05
  Speaker 2: So they they gear up on their on their equity within their personal property to create a contribution to their SMSF and Yeah.
• 14:12
  Speaker: Well, it it doesn't need to be contribution.
• 14:15
  Speaker: It can also be like um an R L RBA to themselves.
• 14:18
  Speaker: So it will be if we go that way, that direction, it will be to me, it, it's quite it's a lot more cost effective because you don't pay for the loan establishment fee for the SMSF, which is a thousands of dollars in saving.
• 14:34
  Speaker: Yeah.
• 14:35
  Speaker: So what you can do, correct me if I'm wrong, is you know, you can actually get an cash equity release from the their personal situation, yeah, and borrow against their home and then personal properties or whatever other securities are selling, yeah, and then do an RBA to the SMSF.
• 14:54
  Speaker: And um, as long as there's an RBA agreement between the member themselves and the SMSF, that qualifies.
• 15:02
  Speaker 2: 100%.
• 15:02
  Speaker 2: Yeah.
• 15:02
  Speaker 2: 100%.
• 15:03
  Speaker 2: And it makes sense doing the the example that I use, and and I'm and let me, I'm gonna talk personally.
• 15:09
  Speaker 2: Yes.
• 15:09
  Speaker 2: So my business was previously paying $130,000 a year in rent, right?
• 15:14
  Speaker 2: Commercial rent, special property.
• 15:15
  Speaker 2: Yeah, crazy.
• 15:16
  Speaker 2: What can I do with that $130,000 a year, right?
• 15:20
  Speaker 2: What else could I do?
• 15:21
  Speaker 2: And so this is where let's look at I've got some clients that they're an electrician, right?
• 15:26
  Speaker 2: They've just bought commercial property, commercial warehouse, right, in Erina.
• 15:30
  Speaker 2: And they have saved themselves on rent, created an investment plan, they're still paying market rent.
• 15:35
  Speaker 2: So this is the thing.
• 15:36
  Speaker 2: But to themselves.
• 15:37
  Speaker 2: Right.
• 15:38
  Speaker 2: And so they've they geared up on their property and they did it L L RBA to their SMSF.
• 15:43
  Speaker 2: Yeah, and they did this, and they borrowed it 55%, I think, from memory.
• 15:48
  Speaker: Yep, L VR, yeah.
• 15:49
  Speaker 2: Yep, and it and it's a it's an amazing structure for them.
• 15:52
  Speaker: It really is because once you actually make contribution up to your you know, annual contribution cap, you can actually help pay off that loan whilst getting tax deduction on the contribution.
• 16:04
  Speaker 2: So it's a win-win.
• 16:05
  Speaker 2: So that works on an owner, owner-occupied, and I'm needing to be careful about using the word owner-occupied, but essentially your business is renting it from the front.
• 16:14
  Speaker: And then I think that's the best setup.
• 16:15
  Speaker 2: Right.
• 16:15
  Speaker 2: The the the risk that you play in if you were to just go buy an investment property, the commercial property anywhere, right?
• 16:21
  Speaker 2: Who's going, you're gonna have tenancy risk?
• 16:23
  Speaker 2: Yes, that that's vacancy risk.
• 16:25
  Speaker 2: Yeah, commercial property isn't the same as residential property, right?
• 16:28
  Speaker 2: So you've got to factor that into your strategy.
• 16:31
  Speaker 2: Do I have enough in my member contributions and and in my available cash position in the SMSF to be able to suffice a tenant moving out if you're gonna go down that strategy?
• 16:42
  Speaker 2: And that is why having your strategy down pat before you go out shopping is so, so important.
• 16:47
  Speaker 2: That involves your accountant, your financial target.
• 16:49
  Speaker 2: Absolutely.
• 16:50
  Speaker 2: Your legal planning and a broker's decision.
• 16:53
  Speaker 2: Honestly.
• 16:54
  Speaker: Yeah.
• 16:54
  Speaker: And there's always another way to invest in property, like commercial property.
• 16:58
  Speaker: If you don't actually want to borrow MSF or, you know, have the cash out from the member to lend back to the SMSF.
• 17:07
  Speaker: You can also, like we've we've done this, Luke, um a few times, where I establish a unit trust to purchase a commercial property.
• 17:16
  Speaker: And then, you know, the investors within the unit trust structure is the SMSF.
• 17:22
  Speaker: It can inject a certain amount of balance in there, and then the member themselves also have another investor who come in and or two SMSF um inject cash into the unit trust to start the initial purchasing process and then So in layman's terms, you've got a you've got a vehicle, a unit trust up the top.
• 17:42
  Speaker: Yeah.
• 17:43
  Speaker 2: And underneath it, you've got an SMSF or two SMSFs.
• 17:46
  Speaker: Yeah.
• 17:46
  Speaker 2: Um, and the unit trust is the one that's buying.
• 17:48
  Speaker: Yes.
• 17:49
  Speaker: And then it borrows the rest.
• 17:50
  Speaker: Yeah.
• 17:51
  Speaker 2: So that's so that's not under the SMSF rulings for from a League 40.
• 17:56
  Speaker 2: That's right.
• 17:56
  Speaker 2: Um some lenders, as soon as they see an SMSF is involved from a beneficiary or a unit.
• 18:02
  Speaker 2: They have a problem with it, they start having a problem with it.
• 18:04
  Speaker 2: There are some lenders that will still do it, but you need to do pretty much a round table with that lender to make sure that it works.
• 18:11
  Speaker 2: Yeah.
• 18:11
  Speaker 2: So we've just done that recently with a couple of cops.
• 18:13
  Speaker 2: Yeah, okay.
• 18:14
  Speaker 2: And it worked.
• 18:14
  Speaker: Yeah.
• 18:15
  Speaker: Awesome.
• 18:15
  Speaker 2: So did it, and there's a couple of other people.
• 18:17
  Speaker: Is there like a restriction in terms of lending to the unit trust?
• 18:21
  Speaker: Are they like as much restriction?
• 18:24
  Speaker 2: No, not at all.
• 18:25
  Speaker 2: So it's still deemed as a as a commercial borrower.
• 18:27
  Speaker 2: So if you're buying residential, is that what you're talking about?
• 18:31
  Speaker: Well, you can, yeah.
• 18:33
  Speaker: That's just another strategy or together.
• 18:37
  Speaker 2: If you're going down the path of buying commercial, it is going to be deemed as a business loan and all that sort of stuff.
• 18:41
  Speaker 2: Yes.
• 18:42
  Speaker 2: And if it processed to normal hug lending, if you're going down the path of a unit trust, and it's not talking about the beneficiaries and unit holders right now, but if the unit trust is buying a um a residential property, there are only there are only certain lenders will let you lend to that to that structure because they don't want to just keep people setting up unit trusts, you know, separate.
• 19:02
  Speaker: Yeah, especially now they're trying to do that to get around the negative gearing because they can still do that if they inject cash into the unit trust to purchase at a push.
• 19:11
  Speaker: The residential property, yeah.
• 19:13
  Speaker 2: Exactly.
• 19:13
  Speaker 2: There's a few TikTokers and social media influencers that are pushing that avenue.
• 19:17
  Speaker: Yeah.
• 19:17
  Speaker 2: Um, but you just got to be careful of that.
• 19:18
  Speaker 2: That yeah, that's all I like.
• 19:19
  Speaker: But there's like there's there's opportunities to still set up a unit trust and then acquired lending.
• 19:26
  Speaker: Yep.
• 19:26
  Speaker: Yeah.
• 19:26
  Speaker: In the normal channel.
• 19:27
  Speaker: Yep.
• 19:28
  Speaker: Yeah.
• 19:28
  Speaker: Perfect.
• 19:29
  Speaker: That's really good.
• 19:30
  Speaker: Thank you for that.
• 19:31
  Speaker: The what are the top three SMSF lending mistakes and assumptions that you've seen for you know the past five years when when things are changing?
• 19:43
  Speaker 2: Yeah, so the the top three that I've seen from a lending mistake.
• 19:47
  Speaker 2: So I'm not gonna, I'm not a professional or specialist in the accounting and things.
• 19:51
  Speaker 2: Yeah, that's okay.
• 19:52
  Speaker 2: I'm just gonna talk about lending.
• 19:54
  Speaker 2: The biggest one, and it's happened a couple of times, is I've bought the property, can we now do the finance?
• 19:59
  Speaker 2: Bum bum, don't do that.
• 20:00
  Speaker 2: Do not so buy the property before working out the finance and the structure is a massive mistake because people fall in love with the property, they start putting deposits down and all that sort of thing.
• 20:10
  Speaker: Emotionally involve themselves into that decision, yeah.
• 20:14
  Speaker 2: So before you exchange, you ideally want a clarity of clarity around does it qualify for the from a security point of view?
• 20:20
  Speaker 2: Does it work with particular lenders, the purchasing entity, bear trust?
• 20:25
  Speaker 2: I'm not even gonna go into double stamp duty, but sign the contract before the all that sort of stuff, right?
• 20:30
  Speaker 2: So there's there's some really clear things there.
• 20:32
  Speaker 2: So don't sign a contract and then ring your accountant lawyer and broker and asking, now make it work.
• 20:36
  Speaker 2: You can't do that.
• 20:37
  Speaker 2: No.
• 20:37
  Speaker 2: So the planning is key.
• 20:39
  Speaker 2: 100%.
• 20:40
  Speaker 2: The second one is underestimating how much um cash is actually needed.
• 20:44
  Speaker 2: So someone hears 75% loan to value ratio and thinks, yep, great, I only need 25%.
• 20:49
  Speaker 2: Potentially, there is different equity requirements, stamp duty, legal costs, valuation, lending costs, setting up the SMSF and the holding trust, you know, those those establishment costs, setting up the trustee, getting all those things vetted.
• 21:04
  Speaker 2: So then also potentially settlement or lender liquidity requirements post-settlement.
• 21:09
  Speaker 2: So it's not just 25%, right?
• 21:11
  Speaker 2: So that's that's another big mistake that I'm seeing.
• 21:13
  Speaker 2: People get a little bit shocked when they go, Oh, how much is this actually costing?
• 21:18
  Speaker: Yeah, that's right.
• 21:18
  Speaker: And then they'll they'll be short.
• 21:20
  Speaker 2: Yeah.
• 21:21
  Speaker 2: And the and the third one is assuming that every lender assesses the same way.
• 21:25
  Speaker 2: So in residential lending, it's pretty much a the same, just lenders have little specific niches that they play around in.
• 21:32
  Speaker 2: It is um they no two lenders arrive at it um at the same borrowing capabilities um based on exactly the same apples for apples.
• 21:43
  Speaker 2: They just don't do it.
• 21:44
  Speaker 2: Yeah, differences include the maximum L VR they do, the shading of the rental income.
• 21:49
  Speaker 2: Some will shade it at 70%, some will shade it at 80% of what.
• 21:53
  Speaker 2: So if you're earning $100,000 a year, that some will only take $70,000 in rent, $80,000 in rent.
• 21:58
  Speaker 2: Your contribution root um treatment, so how much you're contributing um as a minimum from a wage point of view or voluntary.
• 22:06
  Speaker: Yeah.
• 22:06
  Speaker 2: Your liquidity, some actually have minimum loan size, some actually have minimum maximum loan size.
• 22:11
  Speaker 2: So some actually won't borrow any or lend any more than two million dollars.
• 22:14
  Speaker 2: Right.
• 22:14
  Speaker 2: Some will borrow, you know, lend more than that.
• 22:17
  Speaker 2: Some won't do play in the space until you hit $500,000.
• 22:20
  Speaker: So there's a there's a a lot of restrictions.
• 22:22
  Speaker: Yeah.
• 22:23
  Speaker: So it's so important, yeah, so to speak to your broker beforehand and just making sure that your broker knows what what are they doing.
• 22:32
  Speaker: It's really quite important as well.
• 22:34
  Speaker 2: I just wing it.
• 22:35
  Speaker 2: No, look, it's you do it.
• 22:37
  Speaker 2: It is it is honestly, and there's a mortgage brokers that don't play in the space because of this.
• 22:41
  Speaker 2: Yeah.
• 22:42
  Speaker 2: The other you've asked me for three.
• 22:44
  Speaker 2: I've just given you three, but can I just add one more?
• 22:46
  Speaker 2: Yeah, for sure.
• 22:47
  Speaker 2: The biggest the other thing is the time frame.
• 22:50
  Speaker 2: SMSF lending is not going to get done in a week.
• 22:53
  Speaker 2: No, is the the structures, seed vetting of of the the the SMSF line.
• 22:59
  Speaker: Not just the whole structure itself, it takes like uh like four to six weeks just to set up.
• 23:05
  Speaker 2: I'm doing one at the moment.
• 23:06
  Speaker 2: We set it up, set up the lending positioning maybe five weeks ago.
• 23:10
  Speaker 2: We're still not uh not there yet.
• 23:13
  Speaker 2: Still not at approval yet.
• 23:14
  Speaker: Yeah.
• 23:14
  Speaker 2: Some lenders are sitting at three weeks, turning time.
• 23:17
  Speaker 2: So if you want to put a you know your name on a property and it's got a cooling off period and you've only got 10 days, this is why you need to have it all done beforehand.
• 23:25
  Speaker 2: Yeah.
• 23:26
  Speaker 2: If you're seriously thinking about doing this as a strategy, do it early.
• 23:29
  Speaker 2: The structuring and the conversations with your specialist advisors.
• 23:33
  Speaker: And it helps to have all your professionals in one room as well.
• 23:37
  Speaker: Or just, you know, if you consider getting advice from an advisor, like accountant, your financial planner who don't really have a mortgage broker in-house like we do, you need to actually make sure that they talk to each other.
• 23:53
  Speaker 2: 100%.
• 23:53
  Speaker 2: Yeah.
• 23:53
  Speaker 2: There's so many little things that can be missed.
• 23:56
  Speaker 2: Um, and it could be where are those contributions coming from?
• 23:59
  Speaker 2: Yeah.
• 24:00
  Speaker 2: Where's the cash coming from?
• 24:01
  Speaker 2: You know, what is the tax considerations here?
• 24:04
  Speaker 2: You know, what is our timeframe for setting up the bear trust?
• 24:06
  Speaker 2: What is this, you know, it's all that sort of stuff comes into play.
• 24:09
  Speaker: Yeah.
• 24:09
  Speaker: No, thank you, Luke.
• 24:10
  Speaker: So I'll bring this, you know, episode to a close.
• 24:14
  Speaker: And so if you're considering purchasing property through the SMSF, and what would be your advice to those clients, listeners?
• 24:24
  Speaker 2: Have your professionals and your and your advisors in your corner early.
• 24:27
  Speaker 2: Yeah, definitely.
• 24:28
  Speaker 2: That's that's primarily, you know, we we can spitball numbers, you know, and if it does work, it does work.
• 24:35
  Speaker 2: But it's better to know that before and say falling in love with properties or under you know, going, yep, my business can then rent this property.
• 24:42
  Speaker 2: It's all that sort of stuff.
• 24:44
  Speaker 2: Just stop, let's let's check it out.
• 24:46
  Speaker: Yeah, stop, breathe, and get advice.
• 24:48
  Speaker: So thank you so much, Luke, for your time today.
• 24:51
  Speaker 2: No worries.
• 24:52
  Speaker: You know, great insight to the lending world.
• 24:57
  Speaker 2: No, it's great.
• 24:58
  Speaker 2: Thanks, Luke.
• 24:59
  Speaker 2: Thanks, Mike.
• 25:00
  Speaker 1: And that concludes another edition of My Accounting Advantage.
• 25:05
  Speaker 1: See you next week.