Can a SMSF secure a new build two part contract (house and land) when there is borrowings?
The answer today is “definitely yes”, if undertaken correctly using the one part contract solution we will introduce you to. Without which the answer unfortunately is a resounding No!
The ruling for two part contracts states “that a SMSF is unable to secure residential land and improve on the land whilst there is borrowings.” Meaning one cannot have a two part contract, one for the land and one for the build, if the SMSF is going to borrow money.
Question becomes : “So how do we overcome it?”
The solution is to have another entity step in between your SMSF and the two contracts. They settle the land on your SMSF’s behalf, and enter into and pay down the build contract on behalf of the SMSF.
At the same time they enter into an agreement with your SMSF to ‘sell it the end product’, which is now your new build. thus the process removes the investment barriers of a two-part contract for building and development.
Simply explained : properT network source a block of land for you, have a home designed to suit. This firm sign both land and build contract, after which you enter into a single contract with them, put down the required deposit and sit back and wait for completion.
Today, to find a builder who is prepared to offer this service is just about impossible as builders as just so busy and they just don’t need another layer of complexity, when they can make full profits and get guaranteed their payments along the way through bank draw downs.
More Importantly : This now gives you the investor a far wider and increased choice of location, build, builder and options to suit your budget. Our strategy is to match the investment vehicle to your budget, purpose and objectives for the investment (and not to squeeze the wrong property into your budget). Now that you have choice, it is easy to match your investment strategy to a ‘best fit’ property. The result is a financially healthier SMSF.
Having choice also gives you improved control of the financial destiny of your SMSF as it has never been easier to purchase a brand new home and land through your SMSF, as it is right now. On behalf of your SMSF you have the opportunity to remove all limitations allowing you to decide the location, which block of land and which builder.
Another advantage is having choice makes it easier to diversify your retirement portfolio into property. Property in Australia (when held for 7 – 10 years) is viewed as a low risk investment vehicle. Be mindful – not all property is Investment Grade!
Another advantage is that this opportunity is totally unique. Giving you further opportunity to diversify your portfolio.
Under single contract, the process is deliberately set up to guide you through each step from start to finish, simplifying the entire process for you and your SMSF. Meaning the system ensures that the land settlement and the construction process is overseen on your behalf making it that easy for you, saving you time and unnecessary stress.
Why Property in a SMSF
Diversification of your portfolio
Ability to Leverage, meaning put down only 20% or 30% as a deposit and borrow the rest
By way of example : if the Investment Grade Property were worth say $650k and you invested only $130k, this $130k is working for you on a value of the asset which is $650k. Yes or yes?
The result is your 20% is working for you at 100% of the asset value. The compounding returns are thus in excess of say a managed fund or share portfolio where if you invest only 135k then ONLY this 135k is working for you.
Further to this, you will receive an ongoing Rental Income which could help pay down the loan for your SMSF and when you achieve increased equity, your income on retirement will be that much higher.
Another benefit is that one can deduct depreciation against SMSF contributions to further lower the 15% tax rate on contributions.
Capital Gains tax is also lower, especially when you hold the property for longer.
Industry Funds over 10 years tend to return around 5% to 6% on average and for the privilege you pay fees onto op this, further reducing your average returns. Sure of late, we have experience extraordinary returns that are predicted to flatten out again and head back into ‘normal’ territory and performance. This spate pushed up long term yields towards 8.2%. But property has also experiences highly unusual gains over this same period.
Under ‘normal’ conditions, an Investment Grade residential property with a 20% deposit could be returning you just over 10% pa consistently. And keep in mind you have only invested 20% so if you take the actual yield on this $130k which is the only $’s you have invested, then the yields are that much higher at around 23%.
Can a SMSF borrow money to invest in a Single Contract
In short the answer is yes, speak to us we will direct you according to your needs
Choice to sell the asset and take profits and reinvest the profits if that is your preference
Hold the asset and live off the Rental Income
Where to from here
Investing in property with a SMSF to secure an income-producing investment vehicle forming an essential part of your own retirement planning, is easier than you think, it is the prospect of building from the ground up that may seem overwhelming. Invite our system to partner with you and your SMSF to become your trusted partner, placing you and your Super first at all times. Ensuring our process helps you every step of the way to help you get the most our of your SMSF investment.
Now that you have CHOICE of how you may be able to maximise your Super and Leverage into an asset that is deemed risk mitigated over a 7-10 year period and you can secure a new build – reach out to us with your questions and or level of interest.
At properT network we have been helping our clients secure Investment Grade property where our guarantee to you is to save you time, help you come to an informed and educated investment decision so that you can make more money.
We have been in this space for 16 years now, prior to that 15 years financial planning (which we gave away as the products just did not suit our client base). Meaning we own a lot of knowledge, skills and understanding in this investment space.