Category: Finance

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Making Money in Commercial Property Through a Self-Managed Super Fund

Some of the most important decisions a business owner will make are about their premises: whether to rent or buy, where to base the business and even the style of the property are important to get right. For those with a Self-Managed Super Fund (SMSF), there is one more option to consider: landing business premises and an investment property at the same time. This is a topic that all business owners should take some advice on.

Figuring out whether  buying your commercial premises through your SMSF is an option that’s suitable for you is imperative to the success of your investment. There can be many gains through purchasing commercial property through your SMSF, including creating a certain level of freedom by smart use of resources. It frees up capital for the business owner and they are unlocking super to do more for them.

Further to this, the property is protected against insolvency. Depending on the type of business, this can be particularly appealing. There’s a tremendous level of protection of assets within super, so it ticks the asset protection box for a lot of SMEs that may be subject to litigation due to the nature of what they do.

Then there are the tax benefits. While it is in accumulation phase, income tax is only $0.15 in the dollar. In retirement, as the law stands, its zero. This means that the money accumulated in an SMSF through the investment does not get taxed.

On the flip side of the shiny self-management coin, Astute St Leonards offers a word of warning regarding the obligations. There is an absolute element of responsibility on compliance matters. You are the trustee of an SMSF and you need to understand what those responsibilities entail and we recommend taking specialist advice from your financial planner.

You must pay commercial rates for rent through a prearranged lease agreement and, although having a protected asset is great for some businesses, it also means that equity is locked within the fund. You can’t take earnings elsewhere. 

Having an SMSF means you can’t give all of this work to someone else to do for you, but you can seek advice. Astute St Leonards has access to a very successful financial planner that forms an integral part of our team. Call us today to get the advice that will help your business grow.

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Improving Your Wealth with a Self-Managed Super Fund Loan

Many savvy investors run a portfolio of investments to balance the ebbs and flows of interest rates, the stock market and other asset fluctuations. One area that is very popular with these investors is a Self-Managed Super Fund (SMSF). The idea behind them is that it gives the investor more control over the fund and its related assets, namely property, shares and cash.

Several years ago, all the big Banks lent money to these funds to acquire property assets as part of the fund’s portfolio. However in recent years, the number of lenders has shrunk considerably with St George, the Commonwealth Bank and AMP, for example, pulling out of the new SMSF lending market and trying to retain their existing customer base.

At Astute St Leonards, we are working with two of the remaining lenders, Liberty and La Trobe Financial to refinance loans from the other lenders. The many reason for this is that the interest rates at the original lenders has remained up over 6.00% whilst new loans can be written from around 4.35% Principal & Interest with a 0.5% increase for Interest Only loans. These rates are based on the lenders risk assessment and the Loan Value Ratio – i.e. the size of the loan compared to the estimated value of the property.

SMSF loans are a little tricky compared to normal home loans in that the property acquisition is done by the fund – and the fund is a trust company with the owners acting as a trustee of the fund and as such the guarantor of any loan. So that means that the loan is taken on by the SMSF not the actual person who is the beneficiary of the trust.

This means a little more paperwork as both the trustee (guarantor) and the fund have to be tested by the lender for serviceability. This takes a little longer to go through as the lender works through all tax returns, accounts and income sources, for example, rental income from the property.

At the time of writing, Astute St Leonards is working with seven groups of trustees moving their SMSF loans to a new provider and saving up to 2.00% on their rates. By switching to a Principal & Interest loan from an Interest Only loan also reduces the capital so the fund retains more equity and therefore grows faster.

If you have property in your Self-Managed Super Fund and your loan is currently over 6.00% then talk with us and we will provide a free analysis of the costs to make the move, as well as an estimated new payment amount with the short, medium and long term savings to be made – it might be that the savings kick in during year two of a new loan simply because the break costs are very high from your existing lender.

Astute St Leonards will work with your financial planner to ensure that all parties are aware of the analysis and we will work collaboratively to ensure that the benefits are known prior to any decision being made.

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Can Your Profession Save Money on Your Home Loan?

When it comes to reducing fees on your home loan or lowering your interest rate, some of you may not have to look further than your job. If you are in a profession that classifies you as a ‘low risk’ borrower in the eyes of lenders, then you may be entitled to special discounts which can save money on your loan.

The Lucky Ones

Accountants, lawyers and teachers are commonly eligible for home loan discounts, or particular loan types without fees, based on their professions. The benefits differ depending on specific professions and it depends on what industry the lenders decide to target as it’s a constantly changing situation, so what’s here today may not be around tomorrow.

An example of this was the slowing down of the mining industry in 2015, which saw mining engineers lose their ‘in demand’ status and their profession-based discounts.

Doctors Take the Cake

Lenders have their own target lists of professions, but doctors are nearly always the big winners. They’ll get waived Lenders Mortgage Insurance, lower interest rates and, in many cases banks will even go outside of their normal policy to get their loans approved. However, not all medical professionals, such as psychiatrists, chiropractors, vets and pharmacists are accepted by all lenders so it’s always advisable to confirm.

How the Perks Work

Simply being in a certain profession won’t automatically save you on your home loan. To qualify you must apply with a lender that offers your profession a special discount and meet that lender’s criteria. You’ll often need to provide evidence of membership of a certain industry body such as the Australian Medical Association. Waived LMI is usually approved without any problems if you meet the criteria, however as your mortgage broker, Astute St Leonards may need to negotiate to get a better interest rate as well.

Because lenders don’t publish these better interest rates, to benefit from the discounts it’s best to have us by your side. Not only will we know which lenders to apply to, we can also assist you with pricing requests and negotiating the best possible interest rate.

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When Should You Refinance a Home Loan?

The answer: Whenever it makes financial sense to do so!

In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan and Astute St Leonards can certainly help you if you choose to refinance.

Mortgage refinancing reason #1: lower rates

The most common reason for people to refinance their mortgage is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.

Mortgage refinancing reason #2: more flexibility

Many people only discover the full details about their mortgage when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.

Mortgage refinancing reason #3: renovations

If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.

Mortgage refinancing reason #4: home equity

Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.

Mortgage refinancing reason #5: defaulting

Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your mortgage repayments, talk to Astute St Leonards about refinancing your home loan to make it more manageable.

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When is the Best Time to Refinance Your Home Loan?

As a home owner with a mortgage, chances are you’ve heard of the term ‘refinance’. A refinance involves reviewing your current home loan, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.

Refinancing can also allow you to consolidate your debts or pay down your mortgage more quickly. At Astute St Leonards, we are currently refinancing property loans in Self Managed Super Funds (SMSF) to increase the value of the super funds. Thus reduces the loan and increases the equity plus more rental income retained.

As described above, another common reason borrowers look to refinance is so that they can access equity – the amount you’d get from selling your home after settling any associated loans, such as a mortgage on that property, and any other costs associated with the property. Depending on that amount, you may be able to access equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.

However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, we will need to assess your needs and objectives as well as your current financial situation.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker like Astute St Leonards, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.

Are you looking to pay less interest?

Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender should that be available to reduce repayments. If you aim for a lower interest rate, this could potentially save you a lot of money in the long term. One of our SMSF clients saw this as a great way to get a better deal, especially as they are getting close to retirement age and need their fund to have as much cash as possible.

While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required. At this point, we will need to find out about your existing loan, repayments and current loan structure.

We will also need to find out more about your current financial situation, including your income, any other current debts and about any assets you own. The current value of the property is also taken into consideration, so we will have access to current data that will indicate what your property is estimated to be worth.

We then review the various loan options and figure out whether it’s worth it for you to refinance. Sometimes it’s not worth it if it’s only going to save a couple of hundred dollars a year, particularly when you take into consideration any exit and application fees involved. But if it’s going to save upward of $1,000 a year, refinancing might be a sensible approach. In some cases, we can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.

Do you want to change your loan type?

One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI) to your new lender. If switching your loan means you will need to pay LMI again, it may not be worth refinancing. This insurance is used to protect the lender from default.

If you do decide to refinance your home loan, working with us rather than going straight to a lender has advantages. We generally have access to loan options from a range of different lenders (up to 36 different lenders) and if there’s a better opportunity for you, we are able to access the new package. It is also important to consider that when you take up a new home loan, it can incur exit fees and may not have all the features your existing home loan has.

Have your circumstances changed?

If you had a recent major life change such as a loss of income or a change in marital status, you might be looking at a refinance of your home loan. If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to us because we can negotiate with your current lender for a rate suitable to your current situation. We can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time and even save you interest in the long-term.

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Can I renovate a property I own through an SMSF?

This is a current topic as Astute St Leonards is currently refinancing properties in Self Managed Super Funds (SMSF) to reduce the interest rates. If you’re thinking of giving your home – or property owned by the SMSF – a total makeover using your fund, think again. Unfortunately, while you and your fellow trustees have some control over your fund, it doesn’t mean you can spend your money however you like to renovate the property.

The ability to renovate a residential property that you own through an SMSF comes down to how you purchased it. Those who borrowed through their fund to buy the property are restricted in what they can do. Slight improvements and repairs can be made, but a full-blown renovation is saved for those who used the cash in their fund to buy the property.

If you used the cash in your fund to buy a property outright, then you can absolutely do whatever you want, provided your SMSF deed allows you to do so. You can sub-divide, you can develop, you can pretty much do anything.

Those who borrowed through their fund aren’t entirely prohibited on making improvements on their property. Repairs are allowed, but they can’t be vast alterations that change the inherent character of the property. You can certainly make the property more rentable by updating things, but you can’t go and completely gut it and change it. If you really want to do some renovations and you had to borrow, the best way is to go outside your superfund.

Choosing to renovate your property ultimately comes down to increasing its value, but in order to do so, you have to be mindful how you go about it. Everyone wants to be a property developer, right? There’s no use dropping a whole heap of cash in a property where nothing in that street is in the same condition and it’s above the price point. You’ve got to be conscious on what you’re spending money on and what you’re doing.

Whether you’re renovating to repair with borrowed funds or doing a complete makeover with accessible cash, renovating through an SMSF is only worthwhile if it improves the return on your property exponentially. Not playing by the rules or accessing your SMSF prior to retirement for personal gain can result in hefty penalties with fines up to 40% of the fund value. Speaking to a accredited broker like Astute St Leonards, who specialise in property refinancing and who work in partnership with Apexx Wealth, a financial advisor focused on the concepts of an SMSF, can help determine whether it’s beneficial for you to renovate through the fund or to find an alternative.

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Master Your Inner Musician with a Quality Instrument

In a recent article I described how Astute St Leonards was helping owners of classic cars to enjoy their assets by getting them roadworthy and usable. We are also doing a similar thing for another joy of life: musical instruments.

Over recent months, Astute St Leonards has partnered with two local businesses to help them grow their business by providing financial packages for string instruments and pianos, two very popular ways to make music, in fact as a child my parents encouraged my brothers and I to take up a musical instrument. We ended up enjoying automotive machines rather than musical instruments!

I was introduced to North Shore Strings last year who provide high quality violins, violas and cellos. They not only sell and service instruments from a wide range of suppliers, however they also make their own high quality instruments, notably violins! North Shore Strings are based in Alfred Street, North Sydney and work closely with many schools providing their students with a range of instruments, some that become that foundation of a musical career. Astute St Leonards has developed a finance package that starts around $5,000 and is cheaper than credit card or buy now pay later systems.

Around the corner from our base in St Leonards is the Steinway Gallery providing sales and service of premium pianos. Everyone has heard of Steinway, however, did you know they have two other brands: Boston & Essex? These pianos are made from the same materials and in the same way as a Steinway but at a mid-range price point. They are the perfect way to step into the market for a quality piano. Again, Astute St Leonards has the ability to provide a personal loan package at a cheaper rate than credit card and we would work with the gallery to ensure that all requirements are met.

For a Steinway, an option maybe to use some of the equity built up in your property and with amazingly low interest rates at the moment, now is the time to use it and enjoy the highest quality piano available.

So, if you are looking to purchase a quality piano or string instrument, talk with Astute St Leonards first and we can get pre-approval. From there it is simply a matter of choosing the right instrument and that is when the experts come in to advise on what is available. We would be happy to facilitate an introduction so you too can have a joy of life: musical instruments.

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How to Refinance a Renovation

This topic came up recently when I was talking to a customer who was looking to refinance their mortgage and defined an outcome of having access to funds for a renovation of the back part of the house. Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property. Refinancing isn’t as straightforward as you might expect – the type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your Budget

The first step when considering how to refinance a renovation is to have a clear idea of your budget. If you underestimate your budget, you run the risk of getting knocked back from your lender. For example, homeowners who have estimated a budget of $100,000 to do renovations, only to discover it will cost a lot more, may have to reapply for the loan, which banks and lenders generally don’t like.

Be conservative with your projection. If you think you need $100,000, Astute St Leonards recommend applying for $150,000 just in case – if you can afford it. The key is stick to your budget which is both hard and critical! The next step is to speak to us to determine which loan will suit your needs and objectives.

Line of Credit Loan (Home Equity Loan)

Also known as an equity loan, to be eligible, a homeowner must be looking to make upgrades to the cosmetic domain of their property. Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan.

These renovations, more often than not, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR). A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into one loan.

To calculate the value you can borrow, subtract your current loan balance from your property value and then multiply by 80 per cent. For example, if your property is worth $500,000, and you have $250,000 left on your loan, your home equity is $250,000. You then multiply this total by 80 per cent. If you’re uncertain of your home value, contact Astute St Leonards who can assist you in arranging an appraisal or valuation.

If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down. Keep in mind, line of credit loans provide you with money that can gather interest very quickly, so if you are ill disciplined with repayments or money, speak to us to define a plan that matches your unique circumstances.

Construction Loans

Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof. Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.

The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, our broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.

When applying for a construction loan, council approval and a fixed price-building contract are required, so it is important to work with a qualified and licenced construction company or builder. Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to us as you may be able to refinance back to the loan of your choice.

When looking at both these loans, consumers can call on other property they own to boost their overall borrowing amount if they wish. Depending on the circumstance, they can use other property to get a line of credit and a construction loan, or they might get a typical construction loan if there is going to be an extensive framework change on the building.

Broker Advice

If you speak to a broker like Astute St Leonards, they will be able to determine which loan will give you the options you seek.  This advice is essential, as a poorly planned construction loan could cost you more down the road. Consumers should ask their broker, “What type of loan am I eligible for?”, because if you don’t get your construction loan right, you may be jeopardising your bank security.

While these specific options can be discussed with your broker, if they aren’t suitable, there may be other options available to you. We can show you how to refinance a renovation.

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Bringing Your Automotive Assets Back to Life Can Improve Your Health!

Over the weekend I attended the Sydney Harbour Concours held at the magnificent house called “Swifts” in the Eastern Suburbs. This was the third year in a row that this event has been held and showcases important cars from Australian owners ranging from the early 1920s up to brand new cars that have just been released – high end supercars. One year they had the first showing of the Ferrari Monza SP in the Southern Hemisphere and this year that honour went to the new McLaren Elva decked out in evocative Gulf Oil colours.

I went along because not only am I a Director of the Royal Automobile Club of Australia who were one of the sponsors, but also because through Astute St Leonards, we have developed finance packages to help owners of classic or vintage cars bring their vehicles up to roadworthy and even concours condition. Many of the cars at the event had only just finished a round of work within the last few weeks and were stunning.

1930s Delage – An Awards Winner!

Cars such as a 1920s Delage with an aeroplane engine, a 1930s Delage that not only won a Concours d’Elegance in the decade it was built, however it also won its class in the famous Le Mans 24 hour race. Both cars won awards at this event and were in immaculate condition – notably both are road legal and were driven to the event with the latter coming under its own steam from Melbourne!

Alongside these were 1960s Maserati, Mazda and Jaguars as well as 1970s Lamborghinis, Aston Martins and Porsche. All had been lovingly restored and this is the essence of why I created the finance packages for owners. Older cars are great to look at and they are a reminder of a time when they were individual and not common shapes. They are a tremendous source of joy for the owners and the general public when they are seen on the road!

Ferrari 246GT Dino

They can also be valuable assets for families and a reminder of past family members. The Maserati, for example, an early 1960s model, sold at auction during the event for $695,000! Several of the owners at the event spoke about completing work that their fathers had started and as such the vehicles were a homage to those relationships.

To that end I have partnered with two companies: Smart Restorations in Gosford and McCarrolls Classic in Roseville. Both of these companies are lead by highly skilled project managers who understand that a restoration is also a labour of love and must be done properly with no shortcuts and where possible using the original equipment and materials. They know the right artisans for the cars in bodywork, mechanical work, upholstery and paint and by helping owners get their cars back on the road, they are also saving some timeless skills that are lost in modern factories.

If you or your family have a classic car in need of work so that it can be enjoyed again, then give Astute St Leonards a call and we will facilitate an introduction and put together a cost effective finance package to enable these professionals to weave their magic!

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Avoid These Refinancing Traps and Mistakes

Sydney Skyline

It is a great time to look at refinancing your mortgages and home loans – with ever lower rates and increasing features being offered in a highly competitive market. The mortgagee is certainly in a powerful position with a market clamouring to be seen. Whether you’re after lower repayments or want to tap into the equity sitting in your home or investment, refinancing can offer a world of benefits. However, here are three refinancing traps and mistakes to be aware of so that you don’t find yourself hooked into a bad deal.

Don’t be fooled by the interest rate

Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments. Worse still, when you come to refinance, you may be hit with huge exit fees because you thought you were being fiscally responsible! Astute St Leonards recently reviewed a refinance opportunity only to find the home owner would be charged $3,000 by their bank to leave, having put a little bit more into the loan each month even without a fixed interest period!

Honeymoon rates are just that

Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount. This is important to consider – with low rates today the savings might add up if you can use an offset account to make a bigger gain.

Be aware of the fees

One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee and possibly mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

In Summary

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Talk to Astute St Leonards and we will guide you through the process avoiding the refinancing traps and mistakes that can catch you out. We are here to help!