Last month we covered an overview of the Cans and Can’ts with Borrowing in an SMSF.
CAUTION – However when it comes to apartments, be careful – get the facts BEFORE you commit!
Several clients have found that when the loan is being organised and the Custodian/Bare Trust prepared needs to specify exactly the asset by address and title, that it comes to light the apartment and car park are often separate titles! This means there must be 2 loans, because with SMSF borrowing, the Law states only ONE asset (or a group of ALIKE assets, such as a parcel of shares) can be acquired with lending, this way.
This is called Limited Recourse Borrowing Arrangement – LRBA – limited because the lender ONLY has RECOURSE in a time of default and calling in the loan, to the asset that the money was loaned for – not any other super assets/money – but the lenders cover themselves by making the Trustees PERSONALLY liable by signing as Guarantors for the SMSF!!! So understand what is involved!!
And in some cases the lender may not lend to purchase a car park!
And not just anyone (we find some brokers have little understanding of this COMPLEX area) so if you need a referral, that is what our CONNECT service provides – both for clients and non-clients – so don’t hesitate to get another opinion – 2-3 will give you peace of mind!
Another solution, is that the SMSF may buy the car park out-right, and just organise borrowing for the apartment.
Talk to someone about the property and what is potentially involved! MOST people don’t and the double loan fees and costs eat into any gains and profits!
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