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Welcome to Finance Fundamentals: Property, Business, and Beyond – your ultimate guide to mastering the essentials of finance. Hosted by Todd Franzway, this podcast dives deep into key topics like mortgages, investment basics, cash flow management, asset finance, and business lending. Whether you're a seasoned investor or just embarking on your financial journey, join us to explore the fundamentals that drive success in property, business, and beyond. Let's unlock the secrets to financial empowerment together!
Welcome to Finance Fundamentals, Property, Business, and Beyond, your go to podcast for mastering the essentials of finance. I'm Todd Franzway, and throughout this series, we'll explore crucial topics such as mortgages, investment basics, cash flow, asset finance, and business lending. Whether you're a seasoned investor or just starting your financial journey, join us as we explore the fundamentals that drive success in property, business, and beyond.
Hello and welcome back to another episode of the Finance Fundamentals podcast. I'm Adam Bell and I'm here with Todd Fransway, your guide to smarter financial decisions. Now, in this episode, we're unpacking self managed super fund lending, a powerful tool for property investment within your self managed super fund.
And of course, with us again, Todd, who can explain all about this, because this is something I know very little to nothing about. So welcome back to the studio. Thank you, Adam. Thank you. Right. Where do we start with self managed super funds for, for property investment? I might ask you, where do we start with this?
Ah,
okay. So, it generally starts, and I guess it's one of those things, I'll go back, it's becoming more and more popular. And I guess the reason it has become more popular is at the moment people's borrowing capacities are stretched based on where interest rates have landed. And keen investors are looking for different ways to continue creating wealth, generally for their retirement.
And as a result, self managed super fund is another way to acquire property, should they wish to. So that tends to be where it starts is the desire to acquire additional property. Right. And that's
A way to be able to get. The capital you need in order to do it. Well, yeah. Or the security.
How does it work?
Yeah. Okay. So. I am showing that I know nothing about this. So, you know, typically people have their retail superannuation fund, right? Sure. And to be able to buy a property, you need to have a self managed super fund, which means you have your own fund that you actually manage on a, you know, month to month basis.
Has pros and cons of course, but basically it's a vehicle that is specifically set up so that you have control over where your superannuation goes by your financial planner and or accountant, both parties can do that. We just do the lending side of it, of course, so we're not telling people to go ahead and do it.
But that's the process and one of the things that you can do inside a self managed super fund is.
Right.
Okay,
so explain the process then for someone who's got their super fund, and has heard about, you know, being able to do this. I know there's a lot of intricate details, but give us the overview of the process that happens
if someone wanted to do it.
Yeah, so the process, they would normally start the conversation with the financial advisor or accountant, to see if it's right for them. Cause like I said. There's pros, but there's also cons, like, we'll probably touch on them a bit, soon. So they have that conversation, is it right for, you know, their objectives, whether it be now, medium and long term, does it fit in?
And if it does, then they would go down the path of actually setting up the super fund, and then transferring from their retail. Right, and that, and then that is then used
to purchase what, everything you can use. Yeah, well that
can be used as a deposit because, and part of what we do is the lending side of the self managed super funds.
Right, okay, so that, that makes sense. So, I've heard of something sort of, you know, limited recourse. What does that mean?
So, within the Superfund, when you purchase a property, there isn't, there's a, an entity set up called the Bayer Trust, that is the entity that is allowed to do the borrowing.
And, as a result, the non recourse, Part of it, refers to, if the, entity was to not make the mortgage repayments, then the bank can come in and seize that security property. They can't touch anything else in the Self Managed Superfund. It's just that one security property. They can't go after any other assets.
Right, so, and that's all done through the structure of That's exactly right. Again, Accountant Financial Advisors. Okay.
Are there, well, that sounds like one, one rule. Are there any other rules sort of around that you can sort of outline around
borrowing through a As a, as a general rule, the, the main thing is that the Whatever's purchased property in property side of things, you can't have a personal gain from it.
So you can't have a related party live in the property, you can't use it for your own purposes. It needs to be set up everything at arm's length and set up for your retirement. So an
investment that is purely there to drive returns for your retirement. That's correct. Yeah, that's Right. Okay. Interesting.
I didn't, realise that. So what then would be the main advantages of using a self managed super fund over other, I guess, ways
that you could fund your investment? Yeah, so like in terms of, if we're talking property, then it's, it's another avenue to be able to acquire a property outside of your personal borrowing capacity.
So it's, and some people have large sums of money sitting in there and they're not always happy with how their retail fund is performing and, you know, some people love property and if they do, it's, it just gives them that option to, either diversify or their superannuation or buy more property.
Sure. Now you mentioned earlier on that there could be some cons with with this sort of setup. What things should people be aware of there?
So, well, like I mentioned you, you become your own superfund manager so you are directly responsible not only for the, performance of the fund, moving towards retirement in terms of what you invest in, but also the ongoing compliance and management.
It's, they're quite expensive to set up and then have audited, on an annual basis. So there's cost and compliance and that's one reason why they're not for everybody. Sure. Sure. So it's, you do need to think carefully before diving into it, not, I just want another property. Yep. There's a lot of, there's a lot more to it ins and out.
That's right. So again,
accountants, financial advisors. Yep.
Absolutely.
Get some, get some advice. Yeah. And that's, and
we, you know, if people come, sometimes people do come to us and say, I want to do this, or we have to send them. to, you know, a trusted accountant or planner to get them started and make sure it's right to them before we go and set up any funding, of course.
Sure. Now you being
the funding expert, how does the funding differ in any way with this in terms of interest rates and, you know, the, the lenders and so forth?
Yeah. Yes. Again, this one is also very different to typical residential lending. Okay. Most people are versed in, so the lenders differ, none of the big banks, I shouldn't say none, but most of the big banks don't do SMSF lending, so you're really looking at the specialist lenders, the interest rates are higher than typical interest rates.
Why
is that?
Do you know? I think. To be really honest, I think it's as, cause it's a niche product, they can put some margin in there. You know, external that I don't really know why they charge more, but that, that would be my guess. and so then the other, the deposit is the other side I was going to mention, 20 to 30 percent as a general rule.
And with that pricing we just mentioned, the larger the deposit. given the interest rate comes down. So, it is, that is one area where it's similar in terms of our loan to value ratio. The pricing is adjusted accordingly. Sure. Okay.
Can you, have you got a example, a client that you've helped with, you know, to, you know, from the start to the finish with this?
Oh,
yeah, heaps. Like I said, it's getting more and more popular. So, so there's probably you're almost, instead of specific Scenarios, it's almost like there's a couple of different, transactions happening. There's a lot of, business people that are buying their business premises, in their self managed super fund.
And then their business is literally paying them rent because the, they've bought the premises for them to operate the business out of, which that is perfectly, yeah, okay to do. So we've seen, an influx of that, so that's, that's generally a commercial, property play and, yeah, the residential side of things, we've had some people be able to, like, purchase additional properties with amazing, revenue.
Returns. Sure. Yeah. Okay. So yeah, that's kind of the two things. The residential investor and the small business buying their own premises. I love that
idea. Something I've never thought of. Buy your own premises and it's not that rent being paid back to the business, uh, by the business to the super fund, should I say.
Yeah. Not seen as a personal gain because it's to the business and the scenario that can and should work if you plan it out properly.
And that's right. But in, in what most of the business people, that, that do. Do that, looking to do is then they either sell their business and that business keeps renting their premises once they've retired or, you know, they can rent it to someone else.
So it gives them options. So many options. Yeah. So.
Okay, so to someone hearing this and, you know, thinking about, you know, potentially looking into using their self managed super fund to do this, what would your advice to them be?
Do the due diligence, like there's, like I say, there's a fair bit to the compliance and the cost side, so it, you know, you can sit here and say how great it is, and it is, it can be very rewarding, but you want to make sure it's right for you as an individual, like we have had some people come and ask.
Is it, you know, can we do this, and I won't even send them to an accountant or a planner because they don't want to have to run the fund and choose the investments. Sure. They always want to buy property. Well, that's not all about that. Yeah, no, exciting avenue, but yeah, so the due diligence, is it right for you as an individual?
Yeah. Can you manage it moving forward? Cause it takes time and effort as well. So yeah, and then if it feels like it's right, then start engaging the right professionals. And like I say, we point people in the right direction and, it just help, help them on that journey. Yeah. And then, yeah, we, obviously we look at the lending side of it and what works best for that security property they're buying, the area they're buying in, deposit they're offering, etc.
Yeah.
Fantastic. Great information and, something, you know, probably not everyone's considered yet and, should if it's right for their circumstances and get that, get that advice. But, look, that, that's great. Just about wraps us up for today's episode on a self managed super fund lending here at the finance fundamentals podcast.
Todd Fransway once again shared his critical insights and how to leverage a super fund for a property investment or what I love that idea about maybe getting a business premises. So look, for more guidance and to discuss your specific circumstances, get in touch with Todd. Easiest way to do that website, www.
fransway. com. dot au. Dot au. Yeah, got the au on the end. Absolutely. And please don't hesitate to reach out for any of your finance needs. So, thanks again for listening and we hope you join us again for more valuable financial tips.
Thanks Adam. Thank you for joining me today for Finance Fundamentals.
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