Commercial Property in your SMSF

Commercial Property Uncovered: SMSF Commercial Property, Lending & Getting the Structure Right

In this episode of Commercial Property Uncovered: Beyond the Contract, Vicki Likoudis, Nicole Faid and Richele Janjatovic unpack the growing interest in purchasing commercial property through a self-managed super fund (SMSF).

With proposed changes to residential property purchases through SMSF limited recourse borrowing arrangements creating plenty of noise in the market, the team cuts through the headlines and focuses on what business owners and investors actually need to understand before making a decision.

The conversation covers how SMSF lending works, the role of an LRBA, borrowing capacity, GST, legal structures, settlement timeframes and the importance of having the right specialist advisory team in place before you find and fall in love with a property.

Most importantly, the team explains why FOMO should never be the reason you make a retirement investment decision.

In this episode, we discuss:

• What the proposed changes to residential SMSF property purchases could mean
• Why the changes do not necessarily mean SMSFs can no longer borrow
• Why commercial property may become increasingly attractive to SMSF investors
• What a Limited Recourse Borrowing Arrangement (LRBA) actually is
• How an LRBA protects the other assets held within an SMSF
• The guarantees members may still need to provide when borrowing through an SMSF
• Why independent legal advice is required as part of the lending process
• Why the right starting point is understanding your financial and retirement strategy, not finding a property
• The different roles of the financial adviser, accountant, finance broker, lawyer and buyer's advocate
• Why business owners may consider purchasing their own commercial premises through an SMSF
• How member contributions and rental income can affect borrowing capacity
• Why you generally need a 20% deposit plus costs
• The often-overlooked issue of GST funding when purchasing vacant commercial property
• How GST can significantly increase the upfront funds required
• Why Victorian stamp duty on a GST-inclusive purchase can create an additional cost
• How lenders assess rental income, contributions, dividends and other SMSF income
• Why commercial SMSF lending is generally offered by specialist and second-tier lenders
• Why a residential mortgage broker may not have access to the commercial SMSF lending products you need
• Why you need to establish your SMSF before receiving formal finance approval
• Why you generally can't release equity from an SMSF commercial property to purchase another property
• The restrictions imposed by the SIS Act
• Why you can't simply cross-collateralise SMSF properties
• The importance of allowing enough time for SMSF establishment, rollovers, finance and legal work
• Why 60 days should be considered a minimum settlement timeframe, with 90 days preferable in many SMSF transactions
• The single acquirable asset test and why multiple titles, including car parks, can create complications
• Why the legal structure and correct entity need to be considered before signing a contract
• How signing as "and/or nominee" may work in Victoria, subject to legal advice
• Why getting the sequence right is critical: strategy, finance, structure, property search and contract
• Why buying a property personally and trying to transfer it into your SMSF later can trigger additional stamp duty
• Why asset selection is particularly important when you're investing retirement funds

Wins & Warnings

⚠️ Warning: Don't buy based on FOMO

The team discusses the growing pressure in the market for people to rush into residential SMSF property purchases before potential legislative changes.

The key message is simple: don't make a retirement investment decision because you're afraid of missing out.

Your SMSF strategy needs to be based on your individual circumstances, financial goals and long-term plan.

🚩 Warning: Be careful of "too good to be true" property promises

A real-world example highlights the risks of investing in a highly specialised residential property based on promises of 10%+ guaranteed returns and the expectation that SMSF lending would be available.

The investor committed approximately $250,000 of superannuation funds, only to discover that the property was extremely difficult to finance and potentially difficult to sell because of its specialised nature.

If the returns sound too good to be true, stop and investigate before committing your money.

💡 The importance of independent advice

The team explains why you should challenge the information you're being given and avoid confirmation bias.

Your advisers should be appropriately qualified and independent, and you should understand why a particular structure, lender or property is being recommended.

Quick Fire

How relevant is pre-approval for commercial property?
Pre-approvals generally last around 90 days, but the right approach depends on your circumstances and whether you've identified a property. Before starting your property search, it's still worth establishing your borrowing capacity and budget.

What does Nicole look for first in a commercial contract?
The title, followed by the GST position. The title can reveal issues including whether the property satisfies the single acquirable asset test, as well as encroachments, notices, building orders and other potential problems.

What should business owners consider when assessing location?
It's not just about whether the location works for the business today. Consider accessibility, parking, public transport, infrastructure, population growth, clearway restrictions, fit-out requirements and the property's potential as a long-term asset.

Key Takeaways

1. Pause before you act. Don't let headlines or FOMO drive a major retirement decision.
2. Build the right advisory team early. SMSF transactions require specialist financial, legal, accounting and property expertise.
3. Get the sequence right. Establish the strategy and finance parameters before committing to a property.
4. Understand the structure. SMSF property purchases involve strict rules and significant legal and financial obligations.
5. Don't underestimate GST and costs. The upfront funding requirements can be considerably higher than expected.
6. Allow enough time. SMSF purchases have multiple moving parts, so rushing toward settlement creates unnecessary risk.
7. Choose the asset carefully. You're investing retirement money, so the property needs to work not only for your business today but also as a long-term asset.
8. Challenge the advice you're given. Don't simply seek information that confirms what you already want to hear.

The biggest takeaway? Your SMSF property decision should start with your strategy, not the property.

If you're considering commercial property through an SMSF, pause, get the right specialists around you, understand the structure and only then start looking for the right asset.

Follow and subscribe to Commercial Property Uncovered: Beyond the Contract, leave a review or send through a question for a future episode.

Commercial Property Uncovered: Beyond the Contract

Hosted by Vicki Likoudis, Richele Janjatovich and Nicole Faid.

🏢 Richele Janjatovich | Finance: [Mecca Finance Group] + LinkedIn
🏢 Vicki Likoudis | Buyer & Tenant Advocacy: [Impacta Commercial Advocates + LinkedIn]
🏢 Nicole Fade | Property Contracts: [Accord Conveyancing + LinkedIn]

📧 Have a commercial property question you'd like us to answer? Send it to commercialpropertypodcast@gmail.com

Follow us on Instagram: @CommercialPropertyUncovered

Subscribe, follow and leave us a review wherever you listen to podcasts.

**DISCLAIMER:** This podcast provides general information and is for educational purposes only. The hosts are not financial advisers, and this content is not personal financial, legal or investment advice. Seek advice from appropriately qualified professionals before making financial, SMSF, investment or property decisions.

Transcript

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SPEAKER_00 0:00

Welcome to Commercial Property Uncovered Beyond the Contract. We're three professionals who see commercial property transactions from different angles. The property, the contract, and the finance. Whether you're a business owner, investor, five, or seller, this podcast is designed to help you make better commercial property decisions. Let's go beyond the contract and then cover exactly what goes on in commercial property. Let's get into it.

SPEAKER_01 0:24

So today we're discussing one of the biggest changes currently affecting SMSF property investing. And then following that, we're going to have our wins and warnings, and then finishing with our quick fire segment. I'm Vicky Lakes, I handle buyer and tenant advocacy, and with me is Nicole Fade of uh on our legals and conveniencing. And then we have Rochelle Yanyatovic in commercial finance. If you've been following the headlines lately, you've probably seen that the federal government has announced plans to prohibit new residential property purchases through SMSF limited recourse borrowing arrangements. Now that announcement has created a lot of confusion and noise in the market. Does it mean that SMSFs can't borrow anymore? Does it affect commercial property? Should people rush to buy before that window closes? Today we'll answer those questions by covering these three areas. What's actually changing? Why commercial property might become even more attractive, and how to successfully purchase commercial property inside Super. I'll hand it over to our finance expert in SMSF, Michelle.

SPEAKER_00 1:34

Fantastic. And love the commitment to uh my last name. So thank you for practicing that. And Nicole's as well.

SPEAKER_01 1:43

Your turn on my surname, girls. So yeah.

SPEAKER_00 1:46

Yeah, exactly. True. Um, before I guess we before we jump into this, I just want to preface that before you jump into self-managed superfund lending or set up a self-managed superfund, the only professional that can provide the advice is a financial advisor. And I think that's really, really important because a lot of the time clients do take direction and instructions from their accountant. But I think it would be, um it would come as a surprise to a lot of people that your accountant can't actually provide advice around the suitability of the structure. So it's really important before you jump in and fall in love with the property, whether it be residential or commercial, it's really important that you form a great deal team. And that is led by a financial advisor who does the strategy piece and the suitability part around a self-managed superfund. Um, the accountant plays the role in terms of the tax advice. Where I come into play, a specialist finance broker, we provide the credit advice, the suitability around particular loans, what options you have, and so forth. Um, so I think it's really important to start off there is working out, you know, what is the actual end goal? And that's where your financial advisor comes into play. Um so with the recent changes, there's been so much noise, and it's actually been quite frustrating to watch from the sidelines from my perspective, especially in the industry itself, watching buyers' advocates. And, you know, I've spoken to you about this at length, Vicky. Um, other finance brokers really pushing and creating this fear in the market to go off and rush into a residential property because of the, you know, capital gains, tax um uh changes and negative gearing changes, et cetera. Um, unfortunately, a lot of sprukers have ruined it for a lot of people that were considering buying residential property in their self-managed super fund. And, you know, my perspective, whilst a big part of my business is around providing um limited recourse borrowing arrangements, I don't think you should be basing your super fund decision or your retirement decisions off FOMO. Yeah. Off a fear of missing out.

SPEAKER_01 4:09

So I mean, that's such a good point. And I think mindful of this moment of a when this airs and when people are listening to it, because there is a window right now that a lot of people are rushing towards in terms of buying in their SMSF and that's for residential specifically. Exactly. And so further to that, maybe if we take it back a step, because what I'm finding a lot in the market, A, speaking to professionals and then B, speaking to the wider market, a lot of people actually still don't realize what it means to purchase a property in your SMSF, regardless of resin. Let's focus on commercial, therefore, regardless of whether you're an investor or owner occupier. What does that mean? So if we take it back to basics, and you also said limited recourse borrowing, like if we take it back to basics, what does that design? What does that mean? Yeah.

SPEAKER_00 4:59

It's a really good question. So uh LRBA, so limited recourse borrowing arrangements, is used interchangeably with SMSF lending. And what that means is that you can take your funds from your super fund, uh, it might be a retail super fund, for example, roll that money into what is called as a self-managed superfund, and use the funds as a deposit to buy a commercial property, for example. Um the term limited recourse borrowing comes from uh the SIS Act and it allows you to borrow money through this particular product, which is very restrictive. There's a lot of restrictions in place. And as the name suggests, there is limited recourse that the lender can take. So what that actually means is if in the event of default you you buy a commercial property, you lease that out to either your business or a third-party tenant, if in the event you can't make those repayments anymore, the lender can only take recourse over the asset that is held in what is called as a bear trust. And there's lots of legal entities that are involved. Um, but the bear trust um holds that particular asset. And once that debt is repaid, the trust is laid bare and that asset is then transferred back into the superfund. Now, um, as the name should suggest, the limited recourse borrowing arrangement that doesn't mean that the lender doesn't have recourse outside of super. So something that isn't spoken about. Um what does recourse mean? The ability to actually take that property and sell it.

SPEAKER_04 6:40

Yeah. Under default. Yeah.

SPEAKER_01 6:41

Yes. And that's done specifically to really protect that asset or more importantly, super.

SPEAKER_00 6:48

Yeah, protect the other assets that are held in super.

SPEAKER_04 6:50

So without exposing the lender to too much. Because you know, on an ordinary transaction, yeah, they've got full rights and access to repossess that property under certain, you know, default triggers. Um, and so this limits or narrows the scope in which the bank can claw back and take possession. Yeah.

SPEAKER_01 7:09

So they're specifically put in place to protect, ultimately to protect the individual's super.

SPEAKER_04 7:16

Yeah. Because you're a trustee. Yeah. And so you're it's not in your personal name.

SPEAKER_01 7:22

Yeah.

SPEAKER_04 7:23

And so you have fiduciary responsibilities and they have to be sure because there's other people or members that might be affected in that fund as well. So the it's a very narrow um restriction in what lenders are allowed to do when it's in, you know, retirement money.

SPEAKER_01 7:41

Yeah, and I think that that's ultimately the most important thing to remember is the reason why these rules are put in place and there are so many restrictions around what you can do with your super, it's ultimately to protect, you know, your future wealth and your and and that uh opportunity.

SPEAKER_00 7:56

Yeah, exactly. So, because when you set up your self-managed super fund, you can maintain your retail super fund on the side. You can have as many super funds that you you wish. Um, so the lender's ability to uh recover their their shortfall, if there is a shortfall, is only through that particular property. They can't touch your other assets inside super. So it's kind of quarantined off to the side. The thing that people do miss and um isn't often explained is that the members of the fund, of the self-managed super fund, still need to provide a guarantee. Um and that guarantee is limited to the amount of debt. But the lender can ultimately take um funds or assets outside of your super. And throughout the process, as you gain finance approval and sign all the letters of offer, etc., you do need to seek independent legal advice, that is a requirement from all of the lenders that operate in this space. Um, but a lot of the time, you know, people are motivated to go down this pathway for several reasons, especially for business owners. Yeah, they um may not have the deposit outside of super to buy their own commercial property. Yeah. Um it might be because of asset protection. It might be because they're driven from a tax perspective, because the during accumulation phase, if they are going to sell their asset during that period of time, the effective rate is 10% because the um the changes to CGT haven't um been impacted inside of Super, you still get that discount.

SPEAKER_02 9:34

Yeah.

SPEAKER_00 9:34

So the effective rate is 10%. And then when you get to pension phase, it's even better because there's no um capital gains tax. So that's why some sometimes commercial um business owners are looking towards this legal structure to buy their own property.

SPEAKER_01 9:51

So then let's focus on that. So business owners that are curious and they're in these early stages of exploring what purchasing their commercial property, the commercial property that they'll be operating from, and what purchasing that property inside of their super looks like. As someone in finance that does this day-to-day, what would you recommend they think about first in order to set themselves up for success?

SPEAKER_00 10:17

Yeah, so I think it's doing a uh having a discovery meeting first with a specialist finance broker. So someone that deals in this space day in, day out, that can explain some of the rules that are in place and some of the key risks. We can quickly work out your borrowing capacity um via your member contributions or your um your super contributions that you make already to your retail super fund and the proposed rent. So you might even be looking at buying your own property that you're in at the moment that you're renting. We could um look at that rent and work out, okay, well, based off your um super guarantee um concessional contributions plus your rent, this is how much you can afford. Now, lenders can look outside of those two numbers to determine if you can afford the debt or not. Um and that is to what we do is we look at your financials and work out, okay, well, based off your profit, can you afford to up your concessional or non-concessional contributions to um, you know, make up the rest of the repayments? Um, so that's one piece. The other part is, you know, do you have a 20% deposit plus costs? Um, there's a couple of things that we also look at as well, especially when we look, we're looking at that borrowing capacity. We're also working out can you afford to take out a or can you afford to pay for the GST if it's a vacant possession? Um and if there is a lease in place, that's even better because you're not having to find that GST. That's where a lot of people get caught out is the GST. There's only one lender in market, hopefully two, because I um I spoke to a particular lender yesterday, and I'm like, please get another GST loan out there in market. There's only one lender that you have to compete with.

SPEAKER_04 12:12

And um And it's and and it's only for a short period of time, but it's still three months that at the most that you need to find that funding, that 10%.

SPEAKER_00 12:21

Yeah, and if you don't have it in super, like that means you've got to find that money. Yeah. Transfer it into super. Yeah, yeah. Work out, you know, from a tax perspective, um, like have you met all your concessional caps? Can you um look at the bringing out the carry-forward rule? Like there's things that are complications in terms of putting that money into super. And once it's in super, you can't get it out.

SPEAKER_04 12:44

That's a that's a a really big um trap that a lot of I my clients that I've seen get into um into difficulties where they've got to find that money last minute at settlement. And in Victoria in particular, stamp duty is payable on GST inclusive amount. So it's like a double dip. You pay a million dollars for a property, vacant possession plus GST, you've got 100 grand on top of that. Your uh stamp duty is say 60 grand, add another six grand onto that. So now you've got 66,000 for stamp duty, plus you've got to find the 100,000. So it's now 166,000. And that 66,000 you don't get back.

SPEAKER_01 13:24

Yeah.

SPEAKER_04 13:25

I mean, it's a it's a capital cost, obviously, but I mean, when I say you don't get it back, it's not in an input credit.

SPEAKER_00 13:31

Yeah.

SPEAKER_04 13:31

You know, that you're lodging.

SPEAKER_00 13:32

Yeah, yeah. So with these GST loans that one lender provides, yeah. Um, when you lodge your bass, you can then clear it, which is fantastic.

SPEAKER_04 13:42

And is that a max LVR? Sorry, they're sort of max L VRs. Yeah, most of these.

SPEAKER_00 13:48

Most of the time in commercial, you you're up to 80%. It's very rare that you would see a lender provide 85 or 90%. But technically speaking, when you're adding the extra GST loan that you're technically borrowing 90% of the value.

SPEAKER_04 14:00

And what about when the banks look at serviceability of money coming into the fund with contributions and rent? What if there are other assets in the fund, shares, and they're getting dividends? And how do they address those or treat those? Really. And also, do they need and want um money in the account, like mojo money or whatever, um, for future forthcoming um tax, BAS, you know, things like that. So, you know, even if you've got 100 or you've got 20% plus costs, do you still need more money left over in the kitty after settlement?

SPEAKER_00 14:41

The way the lender assesses the borrowing capacity is a function of the member contributions and rent. And they also do look at dividend income or other income that the super fund is generating. Now, the rental income is always um extended by 80%. They shade the income to allow for things like repairs and maintenance, taxes, any outgoing income. And even though the tenant landlord might have to pay. Generally, the tenant's going to pay for it anyway, but um, they will always shade that income and they also sensitize the rate by 2%. Right. So there's buffers in place that are built in. And I just want to pick up on one thing that you said about banks. Um, no actual bank provides LRBAs anymore. Self-managed superfund lending. That's all been grandfathered. Um, even if you tried to go to NAB, they wouldn't give you the debt. Um, there are existing LRBAs with the likes of NAB that are on really, really expensive rates, high nines, maybe double digits. Um, you're going to get a better rate and a better structure through a second-tier lender. And I can't stress this enough. And I I know that it probably sounds like there's an agenda here, but it is better to go through a specialist finance broker because there are so many second-tier lenders on the market that do not deal with direct customers. They only distribute through brokers.

SPEAKER_01 16:10

That's such an important one because in our line of work, when we're when clients are coming to us and they've probably already spoken to a finance professional, in many instances, what they determine to be their finance professional is the broker that's helped them with their mortgage, with their home loan. And I think it's fair to say that generally speaking, the majority of mortgage mortgage brokers that focus on residential properties simply don't have the access to lend commercial lending products that a specialist otherwise would, right? And so I'm mindful of time, but um what would be great at this point is I think it's a really separate episode to also talk about the GST component for commercial property. Yeah. So a couple things, a couple things that you would want people to bear in mind when they're looking at purchasing in their SMSF for commercial property, either as an investment or commercial property as owner occupiers from a finance point of view, from legals. And then I can talk about it from a purchasing point of view as well.

SPEAKER_00 17:09

Yeah. Um, there's two things I just want to stress. So to obtain a pre-approval, a formal pre-approval from a lender, you do need to have your self-managed super fund established. They won't give you a formalized approval letter unless if there is a legal entity set up. That doesn't necessarily mean that we can't run the numbers. So we can run the numbers prior to you setting up the super fund because that is a cost. Um, the um second part is there are some things that you need to be aware of prior to jumping in this space. And one of the things that a lot of people aren't aware of is that you can't come back to me in a year or two and say, you know, Rish, my property has gone up in value. I want to buy, you know, the property next door. I've got equity in that commercial property. Let's go. And I'll be like, hold on, no, you can't. And I'll be ending that party pretty quickly. Because unfortunately, through the SIS Act, you just can't do that. Um, so there are some restrictions in place. It's not a lender restriction, it's under the SIS Act where you can't uh release equity to buy another commercial property, you can't cross-collateralize. So once you have paid down that debt, it is technically game over. The only way to access that fund, uh those uh funds is to liquidate the asset.

SPEAKER_01 18:25

Could you quickly speak on the SIS Act?

SPEAKER_00 18:28

Um, so it's governed by the ATO, and there are set rules in place in terms of how a self-matched super fund should be governed, and that is inclusive of what is called as a limited recourse borrowing arrangement. Yeah.

SPEAKER_04 18:41

Um it's a highly regulated industry. Very lot of changes to the legislation over the past uh 10, 10, 12, 13 years, yeah. Um as well. And so um but SISAC, yeah, we just it's a Commonwealth piece of legislation. Yeah. And when you buy property and you have an LRBA, you are governed by the state legislation to which those titles apply.

SPEAKER_00 19:12

I don't know that. Yeah.

SPEAKER_04 19:13

So often you can get some competing forces between federal or commonwealth legislation and state legislation, particularly in Victoria.

SPEAKER_01 19:22

So on that, Nicole, a couple pieces of advice from you when people or clients are looking at purchasing commercial property in their SMSF or to consider.

SPEAKER_04 19:31

Um first thing is uh settlement time frame. You need to make sure that you've got an extended amount of time. Um, nothing, definitely nothing less than 60 if you've got all your ducks lined up in a row at the start, but preferably 90. Um, because as Rich said, your fund needs to be established, but then have you got your rollover done? When do they do all of the um deeming uh, you know, when you uh roll it over? Some of the retail funds might take, they might only do rollovers once a month or something like that. Redeeming, I think I can't remember the name of it. Um, so think about the settlement date. Think about um, in terms of the SISAC, there's a few um little tricky or nuances to it which uh relate to what's called the single acquirable asset test. Um, and in Victoria in particular, um, you can have multiple titles. Car parks are a classic example for commercial and rese. And this applies to residential um SMSF purchases as well as um commercial. But if you've got an office that you're buying or a factory and there's separate titles to the car spaces, those car spaces must be restricted in that they're not capable of being transacted on or dealt with separately to the main property, to the main unit or factory or whatever it is. And um, and sometimes if those restrictions aren't clear and unequivocal to the lender, then it won't comply with the SIS Act. Yeah. Um, simple as that. And that property might not be suitable for you. So before you go down the path of um you've spoken with or you've got your finance team all behind you, you know exactly what you can borrow. Um, your lender, your broker will tell you you need a 60-day settlement or whatever. Because you also have to get third-party advice with these solicitor certificates and things like that. Because you're borrowing as a trustee, but you have personal obligations and guarantees to support that or underpin it. So there's lots of different, there's lots of moving parts. Um, I would say just know the property that you're buying and don't sign um a contract that is in an unconditional state until you know that you are 100%. Good to go on your finance. Yeah. And that it stacks up legally, of course. So you get your legal advice as well.

SPEAKER_00 22:05

So I don't know who should be signing the contractor sale.

SPEAKER_04 22:09

Well, it so a bear trust, um, you usually have a bear trustee. And often the bear trust is not established. So there's so many different pieces. Um, but if you think about you've got your fund over here to the side, so you can have true limited recourse borrowing arrangements. You have your trust set up to the to the side. And within that trust, you'll have a corporate trustee, most likely. The corporate trustees, there'll be directors of those of that company, usually say two directors, which might be the members as well. Um, it's not so much the members, you've got to look at the legal entity that can sign the contract or the person who is an individual person who's acting as a trustee. So we will always advise our clients in Victoria, we have the right to nominate. It's very different in other states. Um, and sometimes a nomination can trigger what's called a subsequent sale. It might trigger um additional stamp duty. So in Victoria, we will advise our clients this is how you can sign it. It's a common law right to nominate. So I can sign under my name and/or nominee, and I can nominate my bear trustee. Um, my bear trust may not have been established just yet. We'll have an address put in the bear trust, usually once the property is known. The corporate trustee of the bear trust, uh, I mean, we need a full flow chart behind us here. Let's figure it all out. It's like a family tree. Have you ever done ancestry? Because we're talking about a lot of trust players here. So yeah. So um, who would sign, Vicky, is whoever your legal representative tells you to sign. Yeah. That's just let's keep it simple that way.

SPEAKER_01 23:57

I think that's a really good way to finish it. And from my perspective as a property buyer for people for owner occupiers that are buying in their SMSF, a couple of things that we touched on, therefore, I'll reinforce is um we're engaged at that moment when they're looking at uh buying property. And also in the majority of the cases, they're going through that process of setting up their SMSF. So when we do get to contract exchange time or signing of the contracts, in many instances, they are signing, as you mentioned, and/or nominee, and then looking at um addressing it uh, you know, just prior to settlement and changing that over on the advice of their legal team, obviously. Uh so that's firstly, and then secondly, um, so the type of property that we buy, I think the most important thing here is to get the sequence right in terms of the advisory team, get the finance sorted, structure to purchase, uh, make sure you're talking to the right finance professionals, the right legal team, your accountant, uh financial advisor if need be. And then we work on a brief. So once we understand the parameters of what we're looking for, we go and find that property and secure it on the best possible terms.

SPEAKER_00 25:03

I would argue you're probably the most important person in the deal team. And the reason why is because people are taking out their super and betting that asset is either going to appreciate or provide some sort of return for their retirement benefits. So the asset selection needs to be spot on, so no pressure.

SPEAKER_01 25:22

Ah, yeah. No, no, it's such a great point because when business owners come to us looking for a particular property, what they've got in mind is a particular property that will serve their business today. And part of what we work them through is to understand what serves your business today, what will serve it in the future, and what is going to be an asset that proves to be a great investment for you down the track as well, you know, which is what you just spoke on in terms of super. So that's really, really important. And finally, it kind of touches on what I've just mentioned in terms of the sequence of getting things right. A lot of questions that we get or after the fact that they've just bought their commercial property is that they then set up their SMSF fund and want to look at uh placing the property in their SMSF, not realizing that that triggers stamp duty. So it's so important the timing of things that when you are considering purchasing commercial property as a business owner in your SMSF, start the conversation sooner rather than later so that you're setting yourself up for success.

SPEAKER_00 26:22

Yeah, no one likes to pay double duty.

SPEAKER_04 26:26

Because sometimes we've got clients and it's just it's far more advantageous for them to do that.

SPEAKER_00 26:31

Really?

SPEAKER_04 26:32

Yeah.

SPEAKER_01 26:33

Okay, you know what? I think that's friends with them. This is this is prompting a uh like a um maybe we re we revisit this uh this topic of SMSF because there are a lot of questions that come up for it. Yeah, it's layered, it's complicated. Yeah, um, there's a lot of terminology out there that is really tricky for the everyday person to understand. So we'd encourage everyone to reach out and ask the questions and we can come back to it and loop in. So, what we're on to next is let's have a chat about wins and warnings. Wins being what are we seeing out there as great success stories for clients? And warnings, what are we highlighting as red flags? I'll kick off. Okay. Thank you, Thomas.

SPEAKER_00 27:12

Um, this is a warning. So I had a client referred to me from another finance broker that doesn't operate in this space. And this particular client, um, they were in their late 50s and they had pulled out roughly about 250,000 from their super, um him and his wife. And what they had done was they placed these funds into a particular company to build a SDA, a specialist disability accommodation, about 50 minutes from Melbourne Metro. And for those that aren't aware, you're not allowed to build inside super. And so there are some um companies out there that will build it for you and then you transfer the property into Super once it's complete. But this particular asset, this residential property, um, was high robust needs, high physical needs or high robust needs, level three or level four, um, which is the highest level of assistance that a resident will require. Yeah. Um, and they then uh obtain funding from the NGIS to then pay for that rent. Now they were told by the company that they could secure an LRBA facility to buy this residential property, get a really high yield, 10% plus guaranteed. And when he came to me, we could not find a lender. And I even said to him, I said, bro, have you spoken to your financial planner about this? Because, you know, this particular asset, the reason why we can't find a lender is because if in the event you can't make repayments or a resident leaves, you know, you've got a really small market of people that are wanting to buy a residential property that has been retrofitted to the needs of a resident's resident that has uh you know high physical supports like hoists and uh kitchens that are low-bearing and and so forth. So he paused and I think he was quite surprised. And I was thinking, you better try to see if you can get a refund and get your money back. But his money had been out of super for nearly two years. Now I don't know what that company had done in terms of, you know, did they put in a term deposit or was it held in trust? Was he earning any interest? But he would have lost, you know, a lot of capital growth during that period on the promise of high yields and significant growth. And I think the warning is if it sounds too good to be true, it probably is.

SPEAKER_01 29:41

Yeah. I mean, that's coming up, uh, that's coming up a lot in the development space, regardless of whether it's special disability services, uh, NDIS. Um, you know, we we tend to hear it a lot. And again, regardless of whether it's residential or commercial, even, that um that people are getting advice by the person that's benefiting from that advice that they're giving. And they're not licensed to give that advice. Yeah, and they're not licensed, right? So what what is the what is the piece of advice that we can offer there when people are really curious about looking at what the opportunities look like for them in the property market, uh, particularly off the back of the budget changes and people shifting away from residential potentially, um, what are the pieces of advice that we can offer people when they are being told or guided by certain professionals, which include us, by the way, by certain professionals, uh, that this is a good proposition or this might be suitable for you? A couple of things that people can really anchor on.

SPEAKER_00 30:41

From a finance perspective, if the broker has not given you more than one option or explained why they could only provide one option, that is a red flag. It means they've only got perhaps accreditation with one particular lender or they've been lazy. Um, they might in this space, we don't have to operate under what's called as best interest duty, which is the regulation overlaid on residential lending. So if you're only getting one option from a finance perspective, that is a red flag and you should be going elsewhere, or getting the broker to explain why they're recommending that particular lender.

SPEAKER_04 31:14

Yeah. From a legal point of view, I'd say pause. Take a moment. And you're not buying an investment for you. Yeah. You're buying it as a trustee for your retirement plan. So there are bigger forces at play than just you. If you're buying residential outside of super, go go your hardest, it doesn't really matter because it's you're at risk. But when you act as a trustee, you have greater uh responsibilities and obligations to ensure that because it's uh a self-uh managed uh superannuation. Yeah. Meaning that you're capable and equipped to self-manage. You don't, obviously, unless you're really a sophisticated investor and you know how to play the market and things like that, um, that's why you get a great uh team behind you of specialists who specialize in SMSFs, not just uh lending, not just, you know, I know a lot of accountants and a lot of financial advisors, and they don't uh deal with too many SMSFs. They might outsource that work because it's high compliance. There's a lot of money going into it, it costs a lot of money, you know, it's not cheap. You've got ongoing commitments, financial commitments with audits and things like that. Um, so I would say pause, take a restock, and just make sure that you've got the right team behind you as well, before you make any decision to sign on that sort of dotted line of anything. You just want to make sure that you've um you know exactly what you're going into.

SPEAKER_03 32:54

Yeah.

SPEAKER_04 32:55

And it's a complex structure. Yeah. So um, and and it can't be just explained away in a um in a basic sort of Mickey Mouse way. Yeah. You know, which is what we're trying to do in terms of the podcast is to break down some, you know, some of the technical aspects of SMSFs um and and commercial lending.

SPEAKER_01 33:18

But yeah, there's a lot of terminology in our space, right? We won't we want to break it down in a very accessible kind of way. And I love that pause is a really good one. And from my perspective, um, I what I would always recommend is challenge the information and don't go looking for confirmation bias. Um a big one in our space, and I think the strength of what we're able to offer our clients is our ecosystem of partners that we work with. Um, but make sure that those partners are independent. Like we have worked together, the three of us, on various kinds of clients, um, all shapes and sizes, right? Um, but I refer clients onto partners that are not directly linked to my business. There's no benefit there other than providing value to clients. So I think that the independence of the team around you is really important. I do encourage people that even if I were to refer you to you, Rochelle, or to you, Nicole, um, explore others. You know, get some really good, robust independent information. When clients come to us and they're wanting to explore a property, we offer complimentary roundtables with their advisors or we plug-in advisors just so that they can get that good kind of like all-round bit of independent information. And we challenge one another. Uh, I mean, I think the most important thing here is don't shy away from information that you otherwise don't want to hear. That's that's where the juice is. That's where the really important stuff is. You know, um, so don't go looking for a confirmation bias, be prepared for hard information, um, and really challenge that information always. Yeah. Yeah. And take heed of the advice. And take the advice on board.

SPEAKER_04 34:56

Because there's no point in telling someone that it's not a right fit if they don't want to listen.

SPEAKER_01 35:01

Yeah. Very true. Great. Yeah. So listen to us, everyone. Um all right. So great. Let's uh we've got a few questions here for what we call quickfire. So let's throw a few of these questions around. And the intention here is one or two sentence answers. So let's get into it. All right. Rochelle, I think this one might be for you. How relevant is pre-approval when it comes to commercial property?

SPEAKER_00 35:28

It depends. Uh so pre-approvals do last for 90 days, and it really depends on what your what you know property you're buying. So sometimes when clients come to us, they don't have an asset in place or they may have sought finance approval. So it just really depends on the situation. But 90 days is generally the time period um that you're given.

SPEAKER_01 35:51

But before they look for a property, before they engage us, I would always recommend that they talk to their finance profess uh professional about generally what the bracket looks like. What do you think about that?

SPEAKER_00 36:01

Yeah, so we can work out a budget in or outside of super pretty quickly. Um so that's that's easy done. The legal entity, that's more of a formality than anything else. All right, great.

SPEAKER_01 36:12

All right, next question I've got is one for you, Nicole. What is the first thing that you look for in a contract of sale for commercial property?

SPEAKER_04 36:21

I go to the title.

SPEAKER_01 36:22

The which?

SPEAKER_04 36:23

The title. The title? Yeah. And second to that would be GST, the GST position.

SPEAKER_01 36:30

So for the listeners that are and for the viewers that are looking in right now, and they have a contract of sale, looking at the title, what are they looking for? So can you speak on that a little bit?

SPEAKER_04 36:39

Well, they don't know what they're looking for. That's why they need me. Or someone else. I know what I'm looking for. If I shared all my secrets, it'd be like Colonel Sanders, you know, sharing his 11 secret herbs and spices. No, it's not that technical, it's not that mystical. Um, I'm looking to make sure that the title meets the um single acquirable asset test. Okay. Um, but there are some other things that can trip someone up, not just the title, um, as in the title restrictions itself. There are other things within a title, boundaries, encroachments, notices, building orders, building notices, noncompliance, things like that that cause them pain.

SPEAKER_01 37:22

Okay, great, great. Another question I have, probably for myself. Uh people say location, location, location, but are there certain locations that we would immediately know are too risky? I think, look, generally this applies to property in general, but let me make it specific to business owners that are looking for commercial property to occupy. So uh business owners generally know the areas that will work for them because they know what works for their business. What we look for beyond what they already know, or maybe they don't know what they don't know, is how is this particular property going to stack up in the future as an investment as well? So we are always looking for, I've got a business owner background, I've had four myself, right? So when I go in there, I look at it from a business owner's perspective and from the perspective of a property professional. A, is this gonna work for their business? What do clearway zones look like? What does parking look like? What does accessibility look like? If we buy this particular property, what is it gonna look like for them to uh to fit it out? From a location point of view, though, we always look at the wider kind of macro area. Does it have good infrastructure, public transport, accessibility, uh, population growth, all of those factors will come into play when you're looking at location uh from an asset type that will hopefully prove to be a really good wealth vehicle. That's not one sentence. It was one sentence.

SPEAKER_04 38:46

It's a quick fire question. You call me out of it.

SPEAKER_01 38:52

All right, so wrapping up from today's discussion, then we've got a few things to uh really anchor in on. Firstly, pause, right? So when you're getting the information, when you're looking at uh what your next move is, pause. Uh secondly, is have the right advisory team around you, most importantly, um, and that advisory team to be specialists in the SMSF space. And then three, um, probably more importantly as well, is don't look at what everyone else is doing and FOMO and uh how it might relate to them. The most important thing is how it relates to you and your current moment and also what your long-term goals might be.

SPEAKER_00 39:26

Thanks for joining us at Commercial Property Uncovered Beyond the Contract. If today's episode gave you one better question to ask, that's exactly why we're here. Don't forget to follow and subscribe to the podcast. All links in the show notes. Leave us a review, leave us a question, share this with a friend. Remember, the best commercial property decisions are usually made long before settlement. We'll see you in the next episode.