Case study: an SMSF property purchase settled in seven weeks

The situation

A two-member SMSF with a balance of about $410,000 wanted to purchase a residential investment property at $520,000 using a limited recourse borrowing arrangement (LRBA).

The fund had a corporate trustee already in place, which removed one of the most common delays in SMSF lending.

The challenge

• SMSF lenders typically cap LVR at 70–80% for residential property
• A bare trust and separate corporate trustee had to be established correctly
• Lenders require a liquidity buffer left in the fund after settlement
• Contributions and rent had to demonstrate servicing within the fund alone

What we did

We confirmed the fund's investment strategy permitted the purchase and worked with the clients' accountant to establish the bare trust and holding trustee before the contract was signed — doing this after the fact is the single most common cause of SMSF deals falling over.

We placed the loan at 70% LVR ($364,000), which kept the pricing at the better end of SMSF lending and left the fund with roughly $58,000 in liquid assets after settlement, comfortably above the lender's 10% buffer requirement.

Servicing was assessed on the fund's rental income plus ongoing employer contributions, both evidenced over two years.

The outcome

• $364,000 LRBA approved at 70% LVR
• Bare trust and corporate trustee established before contract signing
• Liquidity buffer of roughly $58,000 retained in the fund
• Settled seven weeks from application — fast for SMSF lending

What slows SMSF deals down

• Setting up the bare trust after the contract is signed
• Individual trustees where the lender requires a corporate trustee
• An investment strategy that doesn't contemplate direct property or borrowing
• Insufficient liquidity left in the fund after settlement
• Contracts naming the wrong purchasing entity