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SMSF Property Purchase Process (with borrowings)
The steps to buying a property with an SMSF using a loan are as follows:
1. Check borrowing capacity and cash flow
2. Setup SMSF
3. Setup bare trustee company
4. Sign purchase contract
5. Sign bare trust documents
6. Finance approval and deposit payment
7. Settlement
8. Post settlement housekeeping
Check borrowing capacity and cash flow
Before spending time and money setting up an SMSF, speak to Nucleus specialising in SMSF loans to understand the following:
• How much could your SMSF borrow;
• What interest rate will your SMSF be paying;
• What the monthly repayments will be;
• Value of property your SMSF could afford to purchase;
• Lender requirements in terms of financial adviser sign-off.
Setup SMSF
When you've decided to set up an SMSF to buy property, you may begin the setup process with Nucleus.
Order SMSF with Nucleus
The SMSF setup process is as follows:
1. Submit the SMSF setup form to Nucleus;
2. Sign your deed and documents;
3. Nucleus registers your SMSF with the ATO;
4. Nucleus assists with your SMSF bank account setup;
5. Transfer your existing super to the SMSF account;
6. Invest as per your investment strategy (including buying property);
Note that some of the above steps may occur simultaneously with other aspects of the SMSF property-purchase process.
For example, you can research potential properties and even finalise the property while waiting for your super monies to be transferred to your SMSF.
SMSF Setup Fees
The cost of setting up an SMSF to buy property is quoted on email
You pay the SMSF setup fees personally (e.g. via credit card).
The fees can be reimbursed once your SMSF is up and running.
When setting up an SMSF to buy property, you must have a company trustee and NOT use individual trustees. This is because most SMSF lenders only provide a loan where the trustee is a company.
How long does it take to set up an SMSF?
Expect at least four weeks to set up an SMSF from start to finish. A typical timeline is as follows:
• ATO approval - 1 to 2 weeks;
• Bank account setup - 1 week;
• Transfer super - 1 week.
Setup bare trustee company
When your SMSF is up and running, and you are ready to buy property, the bare trustee company (aka holding company) must be set up.
You can order your bare trust and trustee company from Nucleus:
Bare Trust Order
This is a second company and is different to the SMSF trustee company. This company will be the legal owner of the property and hold the title on behalf of the SMSF, which is the beneficial owner.
• How to set up a bare trust and trustee company?
To trigger the setup of the bare trustee company, contact Nucleus, and we will send you an invoice and register the new company with ASIC.
• When to set up a bare trust and trustee company?
The bare trustee company can be set up anytime after the SMSF setup process is commenced.
• Can an existing company be used as the trustee for the bare trust?
Possibly. Contact Nucleus for specific advice.
• How long does it take to set up a bare trustee company?
Nucleus can set up the bare trustee company on the same business day or the next day after receiving request.
Sign purchase contract
QLD, WA and NT property purchases require the bare trust to be established BEFORE (or the same day as) the purchase contract is signed.
Once the bare trustee company is set up, you can sign the purchase contract for a property (except for properties in QLD and the NT).
The name on the contract for an SMSF purchasing property with a loan (LRBA) varies depending on the state or territory the property is located:
State Name on Contract
NSW* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
VIC* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
QLD** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
SA* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
TAS* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
WA** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for the Name of Holding Trust for SMSF Trustee Pty Ltd ACN XXX
XXX XXX as trustee for Name of Fund
ACT Holding Trustee Pty Ltd ACN XXX XXX XXX
NT** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust as bare trustee for SMSF Trustee Pty Ltd
ACN XXX XXX XXX as trustee for Name of Fund ABN XX XXX XXX XXX
*Alternatively, the buyer's name can simply be "Holding Trustee Pty Ltd ACN XXX XXX XXX" (as this is what will be registered on the title) without any reference to the bare trust/holding trust, however, please confirm with your solicitor for their preference.
**QLD, WA and NT purchases should sign their bare trust documents BEFORE of the same day as entering into a contract.
Notes:
• "as trustee for" can be shortened to "ATF";
• Always check the name for the contract with the solicitor handling the purchase on your behalf and take their advice;
• VIC, SA contracts may allow using "or nominee" on a purchase contract, but please seek legal advice first.
Once the contract is signed, provide a copy to Nucleus, as we will need the property details to prepare the bare trust documents.
Pay the deposit required from the SMSF bank account.
The initial and final deposits must be paid from SMSF monies to help demonstrate the SMSF is the beneficial owner.
Purchase Contract Details
SMSF lending and finance approval is more complex and typically takes longer than a regular investment property purchase.
For this reason, the following extended timeframes are suggested when purchasing via an SMSF using borrowings:
• 28 days for finance approval;
• 45 days for settlement;
If you've obtained (conditional) pre-approval for your SMSF loan, you can use include 21 days for finance and 30 days for settlement.
Sign bare trust documents
QLD, WA and NT property purchases require the bare trust documents to be signed BEFORE (or same day) the purchase contract is signed.
When you sign a contract in the name of the bare trustee company, you've created a trust.
A trust is a relationship where a trustee holds an asset on behalf of a beneficiary. For example, the bare trustee company holds the property title on behalf of the SMSF as the beneficiary.
The bare trust deed (also known as holding trust deed or custodian deed) confirms the relationship between the bare trustee company as the legal owner of the property and the SMSF as the beneficial owner.
Obtaining bare trust documents
To obtain your bare trust documents, email the signed contract to Nucleus. We will prepare the bare trust deed and minutes and send them to you for signing.
Remember, for QLD and NT property purchases, you must provide details of the proposed property before the purchase contract is signed.
When to sign and date bare trust deeds
State Execution Time
NSW After contract date
VIC After contract date
QLD* Before (or on) contract date
SA After contract date
TAS After contract date
WA Before (or on) contract date
ACT After contract date
NT* Before (or on) contract date
*Bare trust documents can be signed and dated the same day as the contract date.
Although some jurisdictions allow a bare trust deed to be executed after settlement, because signed documents must be provided to SMSF lenders for finance approval, you will need to sign the bare trust documents shortly after signing the purchase contract.
Pay deposit
The SMSF must pay the deposit for the property.
You should NOT PAY THE DEPOSIT USING PERSONAL MONIES.
Finance approval
Once you've signed the purchase contract and bare trust documents, you must liaise with Mortgage Broker (Nucleus) or SMSF loan provider and complete all necessary steps for finance approval.
Most lenders require a letter from the SMSF accountant confirming ongoing fees and contribution levels. If required, please contact Nucleus and provide details of what is required.
Nucleus understands that many people who use their super to buy property via an SMSF do not seek, or require, financial advice.
After the finance is approved, you must make the final deposit for the property purchase. Make this payment from the SMSF cash account.
TIP: Ensure you keep a copy of the SMSF loan agreement. You should be provided with a guarantor copy. Your SMSF auditor will require this document.
Purchase expense payments
Buying a property requires payment of many fees and expenses. Any of the following should be paid from your SMSF bank account and narrated in the transaction description:
• Solicitors fees;
• Lender finance application fees;
• Building and pest inspection costs;
• Property insurance premiums;
• Buyer's agent fees;
Settlement
If you've followed all the prior steps correctly, your SMSF property purchase settlement should occur without complications.
Ensure you transfer the required amount from your SMSF cash account to your solicitor's trust account before the scheduled settlement date.
Contact your solicitor via phone to confirm their trust account details before making payment because scammers and hackers are known to target property buyers with fake trust account details. Your bank typically won't be able to recover your money if you initiate a payment to a scammer account, so please be very cautious.
Post settlement housekeeping
After your SMSF property settles, it's a great time to gather all documents relating to the property purchase into one place or folder.
Refer to the following help article for a list of documents we will need for your SMSF accounts and audit:
Depreciation schedule
Depreciation is one of the biggest tax deductions available to SMSF property investors and can boost your cash return by thousands.
We can recommend you on depreciation schedule companies with competitive prices, if you need.
Automatic payments
There is a misconception that running an SMSF is complex and time-consuming. It doesn't have to be.
Most councils, insurers and body corporates enable you to set up automatic direct debits for payments of rates, fees and levies. It's recommended you set up these automatic payments and also elect to receive these notices and statements electronically.
Questions and feedback
If you have questions not covered in this support article or have any feedback, please get in touch with Nucleus, and we can update as required.