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Considerations for purchasing a property through an SMSF

Posted on July 26, 2016 by admin

It is vital for those with a self-managed super fund (SMSF) to carry out all the necessary checks before purchasing a property in their SMSF, especially when borrowing is involved.

Investment strategy
The SMSF’s investment strategy must be considered. If the purchase of a property will cause the fund’s other investments to be out of alignment, trustees should consider amending the investment strategy before purchasing a property.

Resources
Trustees need to consider whether the fund will have the resources to purchase the property. For example, will the SMSF purchase the property using its available resources or would it be wiser to purchase a property of greater value using borrowed funds.

Structure
Once trustees have decided on the property to be purchased, the next step is to consider the structure in which the property will be owned. For example, SMSF trustees can own the property or organise to for their SMSF to own units in a unit trust that will own the property.

Borrowing
After deciding on the structure in which the SMSF trustee will own the property, the next decision is often whether the fund will enter into an SMSF limited recourse borrowing arrangement (LRBA). Trustees should determine whether the borrowing will be from a bank, another financial institution or a related party. The amount available for purchase under the borrowing also needs to be determined.

Management
Once the SMSF has purchased an asset like property, trustees need to consider what would happen in the event of the death of a member. For example, the property may need to be sold or transferred to beneficiaries. Or, if a surviving spouse is to be the recipient of the death benefits, then the funds could remain in the SMSF to provide a pension to the surviving spouse.

Liquidity
When determining what would happen in the event of the death of a member, trustees should also consider other events, such as the disability of a member. Planning for this should take place at the time of purchase, as SMSFs can incur significant financial difficulties if a member becomes disabled.

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Avoiding mortgage default

Posted on August 26, 2020 by admin

As individuals struggle with cash flow through the coronavirus, the Australian Bankers Association records that repayments on almost 500,000 mortgages have been deferred for six months. While repayments can be delayed, they cannot be avoided altogether.

Lenders can send you a default notice the day your repayment is overdue. However, they could also wait until your repayment is overdue by 90 or more days. When you receive a default notice, you are given 30 days to repay the amounts you have missed in addition to the regular repayment on your loan. Individuals who are struggling with their home loan repayments can avoid mortgage default by considering the following.

Contact your lender
Lenders are generally willing to work with you through financial hardship. Don’t be afraid to contact your lender to discuss your situation and find out what options are available for you. Lenders are often willing to negotiate short-term variations to repayment schedules that both parties can agree to. However, make sure that you do not agree to unrealistic repayment conditions that cannot be met.

Many Australian banks are offering a six-month deferral on mortgage repayments (including interest) for customers who are experiencing financial hardship as a result of COVID-19. If this is you, contact your bank to see if this is an option.

Apply for a hardship variation
Mortgage holders may be able to change the terms of their loan or temporarily pause or reduce their repayments under a hardship variation. A hardship variation can still be requested after you receive a mortgage default. To apply for one, contact your lender’s “hardship officer” and tell them that you wish to change your loan repayments due to financial hardship. This will usually require you to explain why you are struggling to make payments and to estimate how long your financial problems will continue to determine how much you can afford to repay.

After submitting a hardship variation request, your lender must contact you within 21 days with the outcome of your request. They may ask you for more details regarding your request; in this case, they must contact you again within 21 days from when you provide the additional information.

Consider selling your home
Selling your home is a tough decision, but in some cases this may be the better option if your circumstances are unlikely to improve. If you get to the point where your lender takes possession of your home and sells it, it’s likely that you won’t make as much as if you sold it yourself. When you sell your house on your own terms, chances are you will get a better price and avoid having to pay the legal fees passed on by your lender. Inform your lender if you decide to sell your home; they may ask for proof, such as a copy of the contract with your real estate agent or property advertisements.

Renting out your home until you can afford to make repayments again may also be an option if you are able to live somewhere else during this period.

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