Our client is an extremely talented medical professional and owner of a busy medical practice. An avid property investor he was aiming for the next level with the settlement of his first property inside his SMSF. He was unhappy with his current relationship manager who was not responsive and very unhelpful. After committing a 10% deposit over 2 years ago the window to settle was quickly closing. Unfortunately in that time the market had turned dramatically and our client needed some emergency options!
The challenges we faced with this deal were:
The two prerequisites for any loan approval are valuation and serviceability. For an SMSF loan the “income” is the member’s contribution to the SMSF and the “expenses” are the accountancy fees. Lenders will take a conservative view on the last 2 years or more and in our client’s case, over the last 4 years the contributions and expenses varied by as much as 500% and 300% respectively.
Since our client got advice on SMSF borrowing over 2 years ago, the lender policy and property market has changed so dramatically that he was facing a $65,000 shortfall for settlement. This was a challenge to solve as a lump sum contribution would have tax implications not to mention an unexpected drain on his savings.
We firstly resolved servicing by presenting a 5 year history of contributions, though the amounts varied, the extensive history presented a strong case to accept the average which was sufficient for the loan amount that would be the maximum LVR anyway. Knowing the loan amount we were able to engage with our client’s accountant to devise a tax effective plan to fill the shortfall.
A refinance of his properties outside SMSF released enough equity to fill the shortfall and even saved our client $10,000 a year in interest. His accountant set up a structure for the funds to be lent to the SMSF from his personal name.
Consequently, there was a smooth parallel execution of settling the property inside SMSF property with the refinance of properties outside SMSF.