CBA head of SMSF customers Marcus Evans says despite the obvious appeal of investing in property via an SMSF, many clients still fail to understand the additional restrictions of LRBAs compared to a loan outside of superannuation.
He made particular note of interest rates, which are often higher under an LRBA than a standard investor loan.
“With interest rates currently at historic lows, the potential for them to rise further over the life of the loan is high,” Mr Evans told SMSF Adviser.
Further, trustees should be considering the potentially significant impact of having trouble with tenants or rentability.
“Being stuck with a bad tenant or no tenant for an extended period could have a major impact on expected investment returns, and maintenance costs also need to be considered,” he said.
The relative illiquidity of property is also an important consideration.
“As part of an SMSF portfolio, property could limit the amount of cash a trustee can access when it’s time to pay a pension or other benefits from the fund. As a result, the trustee may be forced to sell at an inconvenient time in the property cycle, which could have a negative impact on the overall investment return,” Mr Evans said.
“All this doesn’t mean that SMSF trustees should avoid property altogether. As an adviser, you can put forward other options for gaining exposure to the property asset class.”
It seems it’s not only clients/trustees that have issues. We’ve had two lawyers from the same large national firm – one advising the bank and one advising the client – that were giving conflicting advice about what was required in relation to documentation. The finance broker was caught in the middle and it wasnt until we became involved that a sensible solution was arrived at.
I find this article confusing. It seems the CBA head of SMSF customers, is telling people in SMSF not to borrow in SMSF and get access to property via other ways. I presume then that this person is on the planning side, rather than the lending side – as a CBA SuperGear representative would not be saying what was said in the last sentence
Having just fixed up another mess by one of the bank’s staff which is becoming a regular occurrence, I would argue there is a huge knowledge gap within the banks when it comes to dealing with LRBAs. Look within for flaws first! I would definitely recommend people seek finance through a broker experienced in LRBAs to avoid issues (I am not a broker and do not accept commissions fro them)
SMSF Coach I remember when i did my first LRBA in our SMSF, i had to get the banks financial planner to sign off on the LRBA. Problem was that i knew more than he did about LRBA’s and property so was just an arse covering exercise by the bank and a waste of my money