SMSF Loans – The Top Ten Common Mistakes

Here are the top ten common mistakes we see SMSF Trustees make regarding SMSF loans.

1. Failing to engage the right advice team.
2. Poor selection of the investment property (asset).
3. Contracts in the wrong name – your SMSF is buying the property – but it isn’t the title holder. A separate Trust and Trustee hold legal title while a loan is in place. These are generally referred to as a “Bare Trust or Security Custodian”.
4. Buying at auction without finance approval.A lender’s “pre-approval” isn’t worth the paper it’s printed on. It will take many weeks for you to get to the stage of a genuine indicative approval that you can have some reliance on – so plan ahead.
5. Buying off the plan and reliance on a “pre-approval.See the previous point regarding “pre-approvals”. But, even if you obtain a more robust  “condition of approval”, it will only last 90 days (at best). Just like outside super, you need to be aware when buying off the plan that you will be reliant on the valuation on the property and the credit policies on foot at the time of completion of the property. This doesn’t mean you can’t buy off the plan – it does mean you should have alternative strategies in place in case things change or the “on completion” valuation doesn’t stack up.
6. Excepting (or expecting) specialised advice from local branch managers or mortgage brokers.If you owned a Ferrari you probably wouldn’t take it to “Cut Price Auto Repairs”. A little knowledge is a dangerous thing. Enough said.
7. Getting into a legal stoush with the lender’s legal review team.They may be dead wrong. You may be dead right. You won’t win because of a thing called the “Golden Rule” – they who have the gold get to make the rules. All you will do is burn up time and money. Avoiding this by obtaining your documentation (especially the Bare Trust Deed) from a provider that has had their documentation approved by lenders and that tailors it to the specific lender. Again, your “team captain” should have a suitable contact.
8. Using a solicitor or conveyancer who is unfamiliar with these transactions.Go back to point one and make sure you have selected the right “team and captain” and let him or her guide you to other specialist providers they are comfortable working with.
9. Using cut price or “bundled” service providers.This is obviously a generalisation, but we see some services of this kind that restrict SMSF Trustees to using particular banks for their cash management account or for their property. Finance, particularly share trading platforms for their equity investments and so on.
10. Over-stretching your fund to purchase a property.This one is entirely human. Who wouldn’t want the highest quality for their fund? We stretch ourselves to buy a home or upgrade it. Almost invariably, we are pleased that we did, but this is investment, pure and simple. We must focus on returns and risk management. What if there is no tenant for a few months? What if we can’t make the contributions to the fund to cover a shortfall? Remember, some of the advantages of property investment are meant to be less volatile in stress than other asset classes. Significant levels of negative gearing are likely to prove very stressful at times.

More About -- > David Watkins

David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus