Emelitta Da Silva: 0:08

Welcome to the NDIS Property Australia podcast. Before starting this episode, we need to provide a general disclaimer. Information contained in this podcast is general in nature only. It does not take into account the objectives, financial situation, or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on the information in this podcast. And you should consider seeking independent and professional advice for your personal circumstances. All right, let's begin. Welcome everybody to the NDIS Property Australia podcast. You're here Emelitta and Minh and today we're here to talk to you about all things NDIS property investment through your superannuation, through your SMSF, specifically. So before we get started, I just wanted to reiterate that this conversation is not intended to be personal advice. This conversation is general in nature only. And we recommend that for personal advice you seek independent and professional tax advice, legal advice, financial advice, and lending advice for your personal situation. All right, so men, did you want to talk about why we are doing this podcast today? Yeah, so

Minh Le: 1:28

Yeah, so we've had a lot of inquiries, the last six to 12 months, more so the last few months, about a lot of investors who are asking about using their SMSF, to invest in NDIS. Now normally, what normally we actually we've never, we never, we never go out there and promote SMSF as a investment vehicle for NDIS, because we're not financial advisors Emelitta, so you can you can appreciate that, yeah?

Emelitta Da Silva: 1:53

Yeah, that's correct.

Minh Le: 1:54

So normally, when we do get involved with the generic advice regarding how to proceed with this kind of implementation of investment for property, we do recommend invest- clients and investors to go talk to their accountant and their lawyer and their financial advisor, because we only give property advice only. But we we've been doing enough of these ones, with our clients and their professional advisors, for the last six months or so to give clients guidance as to what is next steps every step of the way. Because the NDIS transaction from a property perspective is very complex already, when you add the SMSF layer on top of the whole thing. Oh my god, it's mind boggling and complex. And I've just lost so much hair. And I have no hair by the way on these topics, so that's the reason why, Em.

Emelitta Da Silva: 2:45

Yeah, we're here to make it a little bit more simple for you. So let's firstly talk about the basics, having your SMSF set up is number one. So we recommend that if you haven't yet got your SMSF set up, and you don't really know what to do there. That is definitely something that you can speak to your accountant about.

Minh Le: 3:05

And by the way, it's not like we're telling people to go set up an SMSF, we're not. Normally investors that come to us already have an SMSF in place already. And they are interested to explore the idea of NDIS. So Em, when people talk to you about... they call you up and ask about SMSF what's the first question or two that you ask them to qualify for this topic?

Emelitta Da Silva: 3:26

Yeah, so I asked you, first of all, is your SMSF set up? Okay, that's number one. Some people, they don't have their SMSF set up yet and they're just looking to do that. They're in talk with their accountant about it. So it's important that from their super fund, they do the rollover to their SMSF cash management account, and then have everything sold down. Some people still have it in all the assets. So that's the first thing is your SMSF set up? And is other funds in your cash money management account in cash. The second thing I would check is, what is your balance? So how much do you have in your SMSF to put towards this, because as you will learn throughout this podcast, it's not as simple as just having a 20% deposit. There is a little bit more that goes into it with SMSF investment.

Minh Le: 4:17

have to tell them the stark reality that...

Emelitta Da Silva: 4:29

I will give examples throughout this podcast as to, based off the current property prices for NDIS, what is likely a good amount. I'm very careful with my language here to have in your SMSF to do this type of investment. But I will say generally based off current prices, you're probably looking at about a minimum of 250,000. Would you say that, Minh?

Minh Le: 4:54

Exactly, so before the NDIS began, there would have been a lot of interest in the last five 10 years on SMSF anyway, and if you go to any accountant out there, they're gonna say the minimum, the minimum, at least to do an SMSF is 200 grand minimum, right? So when you're talking about property inside an SMSF, it's probably 250 or more. But when you're talking NDIS and property, and SMSF together, I think the magic number should be 300. I, I personally believe 300, but you might get away with 250 as a minimum, it depends on the area and the price as you can appreciate.

Emelitta Da Silva: 5:32

And there's other there's other costs to consider that are outside of the SMSF cost as well like provider fees, etc. But we're not covering any of that today, we're just going to try and keep this as simple as possible, because it is a complex topic. And it's no way going to cover every little tiny bit, this is going to give you a pretty good idea. So,

Minh Le: 5:50

But also, also I want to say today's session is only a good 15 to 17 minutes of general touching base on certain topics. We will cover more detailed explanation of SMSF with NDIS later on in the next two or three weeks time. And it'll be much more detailed chat with a, I'm sure a specialist advisor on board as well. And so for now, we'll just give a general for now.

Emelitta Da Silva: 6:14

That will be awesome. All right. So now that we've spoken about having the SMSF set up, the next step is to talk about the three different scenarios that you could look at. So the first scenario is somebody that has the total amount for the property available in cash, let's say it's an $850,000 property, they've got 850,000 in their SMSF. Good to go. Great, you can pretty much stop listening to this podcast now because the rest doesn't apply to you. Yeah, as long as you got your SMSF set up correctly, that should be pretty good to go. There probably are some other considerations, but for the purpose of the rest of the podcast, you can pretty much check out now. The other two scenarios are buying a property that's under one contract. And the last scenario is buying a property under a two part contract, which I'm going to explain to you now. So

Minh Le: 7:10

I think you should explain the, what are the examples of a one part contract that are available for property anyway.

Emelitta Da Silva: 7:19

You're jumping ahead of me there Minh.

Minh Le: 7:20

So sorry.

Emelitta Da Silva: 7:23

Okay, so let's talk one part contract. So one contract. So if you think about it, it is having one contract for whatever you're purchasing. So this could be for things like apartments, already established properties, villas, and for those of you who don't know what villas are, villas are like a townhouse, like a one storey townhouse for land only. And, yeah, some house and land packages, which is the exception, not the rule. So I'll just recap that. So it'll be apartments units, villas, already established property, land only, or some, and I'm saying some because it is the exception, not the rule, house and land packages. Now, if you are buying a, one of these generally is just going to be one part contract, right. So you're not going to have to worry about two separate contracts, one for land one for the build. So let's say that you've got that 250 to 300,000, which is generally like we said, a decent amount to start looking at SMSF investment for NDIS. From there, you would need to engage an NDIS friendly lender. Okay, so we're not going to go too much into lending today. But it's much more simple when it's under a one contract, you don't have to necessarily worry too much. It's as simple as having the funds in there. The other thing that you need to be mindful of is that you will require a bare trust set up within your SMSF. So that's something that you can talk to your accountant about. Now. Anything else that you'd like to add to that Minh, before I move on to two part contracts? No, okay, brilliant. Okay, so, now this is this is where a lot of our conversations go because a lot of the SDA properties that we have available to be built, are house and land packages. So these will also require a bare trust setup within the SMSF. But there is an extra step because, Minh, I'd love you to explain this part, but the ATO has a regulation within the SIS act that within SMSF if you are getting lending within the SMSF because if you have cash and you're buying a two part contract, this doesn't apply. It's only if you're getting lending within the SMSF that it needs to be what you're purchasing needs to be in ONE contract, not two separate, like house and land. So Minh, do you want to speak about the SIS act? Why that is?

Minh Le: 10:10

No, I don't. I don't want to talk about it. But it does exist. And it just requires a bare trust. Well, let's just keep it simple. It's an SMSF has a part in it called the bare trust, that holds the asset, and is required to protect the other assets in superannuation environment. So I don't want to talk about it to be honest, number one I'm not qualified anymore. But number two, it's just a jargon I don't wanna gonna into it's more more of a accounting topic, but it is important to know, and I'll let the let the, the audience's accountants talk about it. But let's just say, look, you're going to hear about the bare trust requirements, when you find the asset that requires lending, your accountant requires you to get a bare trust with the purchase address of the asset details to be added to the bare trust, and then go from there. From there, the lending occurs in the background with the SMSF. So that's my little answer. Is that good enough?

Emelitta Da Silva: 11:05

Yeah, we'll take it. Yeah. So I suppose just to wrap that bit up. So if you are getting lending within SMSF, to purchase a property, you require bare trust, and then go seek that information elsewhere, basically, all right, so let's get back to two part contracts. So with a two part contract, because you actually require it to be in one contract, there needs to be an extra step, you can't just have the money, then go get lending, buy the property, happy days, there actually needs to be a third party involved. So the third, so to clarify these third parties, their companies and what they do is they actually purchase the house and land package on your behalf. And there's a bit of steps involved, which I'm going to go through, but they purchase it. And then at the very end, once the property is being built, you actually purchase it back off them as a completed one asset, essentially. So I'm going to talk about a little bit about how that actually works. And, yeah, take it from that. So,

Minh Le: 12:13

I just want to just clarify what you just said there, Em. And that is they are a service, a third party service there to help with the transaction. So you as a investor who has an SMSF, you can't do this without a one part contract. And only they can deliver that one per contract for you by acting on your behalf. So they'll essentially buy the block for you build a house for you pay for all the costs for you charge you a fee to do it, obviously. And then they'll give you back the house from their entity to your entity being the SMSF bare trust to settle and own. So that's the basic summary of what Emelitta just explained there.

Emelitta Da Silva: 12:52

Brilliant. Thank you. Now, basically, what going a bit deeper into that. So Minh explained what the one part contract is, and a little bit about how it works. To give you an idea, we also have a couple of third parties that we work with. So this is something that if you're like, where do I find these people, that's something you can talk to us about for sure. I'm going to give you an example, based off one of the providers, the service providers of the one part contract.

Minh Le: 13:21

Do not confuse the service provider with this

Emelitta Da Silva: 13:24

I'm gonna say one part contract providers how service provider. about that. So the first thing that happens is, I've got a case study here for us. So they give you a one part contract price, okay, and that price includes the original package price, the original house and land package price, plus any fees. So the fees include interest costs, stamp duty costs, as well as their own thing. That's generally what they include.

Minh Le: 13:52

Holding costs for the loan, because they're drawing down the interest on the loan payments to pay for the construction of the house. And also the payment of the block, the land contract as well.

Emelitta Da Silva: 14:02

Oh here I have it, land tax rates, insurances, quantity surveyor fees, legal fees, mortgage fees, interest and GST. Yeah, there we go. Perfect. All right.

Minh Le: 14:13

And by the way, stamp duty times two.

Emelitta Da Silva: 14:15

Yep. Generally, generally depends. It depends on depends on which company you go with, obviously, but this is just a general conversation, we're just giving examples, each specific one contract, service provider is going to have a different way to go about it. But this is just a general idea. So the other thing to be mindful of with this is that you're going to pay to double stamp duty. So there's going to be the initial stamp duty

Minh Le: 14:40

On the land.

Emelitta Da Silva: 14:41

On the land, that's Queensland only though, isn't it?

Minh Le: 14:43

Well, Queensland or Victoria or where its own, okay, every every state is different amounts and charged differently. So again, for the sake of keeping it simple. There's a land, stamp duty on the land, which is probably you know, six, seven or eight grand only, normally, yeah.

Emelitta Da Silva: 14:58

Yeah. And then what happens is there's And by the way, don't confuse this with the lender. No, we're another stamp duty at the end when you purchase the property not talking about lending deposits here, we're talking back off them. So there's double stamp duty that's involved in this. Okay, so back to what we were talking about. So they're going to give you a one part contract price, which is going to be the package price plus these additional costs, okay? Now, the process is that you would pay them a deposit, which I'm gonna give an example of, then deposit and also sign a contract with them, there's an application process, generally, there is a contract that you sign from there, okay, great, you've paid the deposit, they would then take over the land and build contracts, and then build the property for you. Once the property is complete, you buy it back as one asset. Okay, so every company has a different deposit amount, but it's about third party companies who require the lump sum to execute generally around 30 to 35% of the one contract price. Okay, I'm gonna give an example. the whole transaction. So the topic of lending and deposits and LVR is it's a different topic later on. This topic here is about the total amount, the costing you as the SMSF investor to engage this, these companies. Yes. Brilliant. So hopefully, you're following us so far. What I'm going to do now is I'm gonna give you an example of this and how this works. So the example is for a $754,000 property in Townsville, okay, so that's the package price. So the first thing is, we got to determine what the one contract price is going to be. So the one contract price, including all the costs involved, that we've spoken about, for this example, and every provider is going to be different. But this is just using one example is going to go from 754,000 to about 803,000. Okay, so there's about $50,000 more, okay. Now, based off this, what would happen is Mr. or Ms. Buyer says, okay, great, I'm happy with that one contract price, I'm going to put down my deposit. Now, in this circumstance with this particular one contract provider, the amount of deposit that they need to put down is 33%. So what that means is they hand over that around $263,000. At that time, they sign the contract with them, the one contract agreement is in place, brilliant. From there, what happens is this one contract provider now takes over or actually just takes the land and build contracts and signs it, and then the property starts being built eventually. Now, about 12 to 18 months ish, depending on you know, build timeframes, all those things, after when the build is complete, now is the time that the buyer will now have to pay the remainder. So in this circumstance, the remaining amount is 66%, meaning around 540,000.

Minh Le: 18:21

I would say I would correct you there, Em, and say yes and no. So it's the obligation of this third party to complete the project. To build it. Remember what you said earlier, they have to build the house and give it to the SMSF buyer. So they build the house and it's finished. They, so, between the builder and this company, their relationships finished because it's built. Now it's time for this company to send that property over to the SMSF buyer to take it over off them. So the end buyer being the SMSF must have his finance ready to buy the entire transaction off the third party. Yes.

Emelitta Da Silva: 18:59

Yes. But in essence, what the SMSF buyer needs to pay this third party is the 66%, which is 540. Yeah, yes. Yeah.

Minh Le: 19:09

So I just want to clarify, that its not another loan. Yes, they get their loan because they've already paid the full amount already at the very start. So yeah, you're right. Correct. So I just wanted to clarify if there was any potential misunderstandings in that comment, that's all.

Emelitta Da Silva: 19:22

okay. So, the thing is, so before build is complete, so what around three months ish? Yeah, around three months. This would be the time that someone would generally look to source their finance. Okay. Now,

Minh Le: 19:37

I'll probably say five, six months earlier. Yeah. Because finance well, begining the process, you need to have application of finance, valuations and all that kind of stuff. So normally, finance is normally three months to get approved and held there for that timeframe. So if you don't want it to the very last minute so do it four or five months prior, and then based on three months turn around. Now, you'll have the funding to prove where to go to settle in about three months later.

Emelitta Da Silva: 20:03

Brilliant. All right. So okay, here's the circumstance, you've already paid your 33%. The build is almost complete, you know, four months ish, five months earlier, you apply for finance. Great. At the end of the contract with the one contract provider, they're expecting you to pay that 66%, which is that 540,000 in this scenario. The thing is, within that timeframe that year to let's say, 18 months, the price of the house could go up, great, or it could go down, which means having funds available for evaluation shortfall is important. Minh, do you want to talk about valuations?

Minh Le: 20:42

Yeah, look, it's just nice to have a bit of buffer money in the account of the SMSF. Just in case, because I will ask you this question Em, if you were to buy a property like this, and you have to wait a year and a half or a year or 15 months to settle, and it came time to settle and there was a valuation shortfall of 40 grand, and you didn't have the money to settle. How do you settle? That's a bit of a bind, isn't it?

Emelitta Da Silva: 21:07

Exactly, exactly. So making sure that when you go into this investment, you definitely have some wiggle room is very important.

Minh Le: 21:16

Now in saying so lending could be at 80 less than LVR. Right. So if it's 80% LVR, it means 20% deposit, you've already paid 33%, which covers costs, right? So there's a small amount of buffer there. But it'd be nice to actually have a more more money there. And that's why I said to you at the very start of this podcast Em, I would prefer 300 grand be your number, you say 250, well I say 300 grand. And that 300 grand really is to cover the emergency costs, like unforeseen like the valuation shortfall. So hence the reason why we said that.

Emelitta Da Silva: 21:47

Yeah, for sure. All right. So we basically covered most of it there. The only other thing that we would mention, I think is-

Minh Le: 21:53

Oh wait, before you go on, hold that thought, hold that thought. So we just talked about valuation shortfall of maybe 30/40 grand on the side, which we have there, but what about provider fees. Yeah. And then furniture costs. Sprinkler, I don't know there could be other costs involved here, which we you the SMSF buyer investor, have not considered so that 300 grand should probably be I think 350 grand, it's very high now.

Emelitta Da Silva: 22:24

So we're just talking 300, just for this alone, right. So this is why it's important. If you are looking to do this, give us a call, we can run you through the potential figures we can I can do a feasibility up for you and show you the potential extra costs involved. And then the last thing that we wanted to speak about is, you know, with that valuation risk, in particular, there is a way to potentially look to alleviate this risk by using a funder that can provide a pre approval that last, you know, 12 months or more Yes, using the same funder.

Minh Le: 23:01

And the best way to describe that is if there's a as a service that uses a commercial funder for SMSF, and NDIS in one, and they are funding the third party for the construction and land acquisition for this SMSF NDIS purchase. And the same funder also does the pre approval on the loan of the takeout buyer being the SMSF. Right, then it is in the interests for the funder to ensure that is a smooth process. Okay. So that way we know well that the client knows that they they are given a exit strategy to get out of the to settle on their purchase of the one part contract at the very end. And that is the hack that we would recommend. I think the word hack is wrong. But the precaution of a conservative approach to get a longer delayed pre approval of maybe 12 months or more rather than three months as per normal to give the SMSF investor the reassurance that there is a way out from settling and moving forward. So I think that's really.

Emelitta Da Silva: 24:06

Yeah, a way to alleviate risk for sure. All right. So I think that we have covered most of it. I'd like to do a bit of a recap. Is there anything else before I do the recap that you'd like to mention Minh?

Minh Le: 24:15

Tax. Yeah, yeah. So again, we are not tax accountants. We're not financial advisors or we used to be. Yeah. By the way, Em used to work in a in a superannuation organisation.

Emelitta Da Silva: 24:27

Yeah, I used to work at a super fund. Yeah.

Minh Le: 24:30

And was it fun?

Emelitta Da Silva: 24:31

Yeah, of course.

Minh Le: 24:34

Great, working superannuation. And I still work as a financial advisor for 15 years or so. And what I want to tell you now is very basic information, which everyone should know, I think, you can Google it, but in a superannuation environment. Okay. Do you know why you should invest in a high yield income asset like this inside your SMSF?

Emelitta Da Silva: 24:58

Favourable tax rates within the SMSF

Minh Le: 25:01

Oh my god, you know, everything don't you. When you environment? work in superannuation for that long course you'll know everything. So superannuation tax rates are 15% income tax, that's the max. Whereas in the real world, if your income goes over 150, I think it's something like that, you're at 45% tax rate, okay, plus Medicare of 1.5%. So 46 and a half percent tax rate, it's super, your 15% Max, and the CGT. Capital Gains Tax is maximum 10% rates. And if you hold your asset for more than a year, you get a concession, of only half of that thing down to 5%. But if you sell your property, in this case, an SMSF property in retirement age, right, and if you're 45 years old right now and you do it SMSF, then you most likely you'll be selling this SMSF NDIS property in retirement age being 65 or 67 years and onwards, then it'll be zero CGT tax payable, zero. Okay. So I'm not giving advice here or leading anyone on, but we say what we understand why people do this, because it's another vehicle to invest in for NDIS, its income, it's as close to as not certainty or guarantee, but it's close to a good consistent 9,10 11% yield at the very start, right. And with CPI long term, next 10/15 years, that rate will go to higher 15 to 17% income long term as well, with CPI obviously, right? So that's the reason why, if anyone were to ask me, should I invest in SMSF for my NDIS property? And I would say, you know,

Emelitta Da Silva: 26:42

We would say that we cannot offer you personal advice on your circumstances. But you should definitely seek some professional advice from a tax, legal financial or Lending Specialist.

Minh Le: You forgot one more: 26:55

Google.

Emelitta Da Silva: 27:00

Very funny. All right. So that was a very comprehensive 15 minute discussion that went for 29 minutes, I'm going to do a little bit of a recap, just to refresh your memory before I let you go. So step one, have your SMSF set up, do speak to an accountant to assist you with that, as I said, funds must be sold down into your cash management account within your SMSF. And the process from having your funds go from your super fund to the SMSF bank account to the bare trust, can take about six to eight weeks. So that's just a good FYI. We spoke about the three scenarios. So the first one being if you have the total amount available in cash, great, the rest of the conversation generally doesn't apply. We spoke about buying a one contract property, meaning a property like an apartment, Villa, established property and some house and land packages, as well as land. And we spoke about the predominant amount of our discussion today was really around that one, sorry, buying a two part contract and having it with a third party's assistant, putting it into a one part contract. So that was the predominant amount of the conversation. There were a lot of considerations there. And we're definitely open to any questions you might have off the back of this podcast. So please feel free to give us a call, we can help you run numbers, we can do feasibility for you to help you sort out your situation a little bit more, clear up.

Minh Le: 28:37

One last thing, we're not financial advisors, not anymore. We only give information which is relevant towards the property. And that will be fed to you and your financial adviser and accountant and they will crunch the numbers as well to verify what we're talking about. Yeah, absolutely. This is a very complex transaction. It's very hard. It's very time consuming for us to really hold people's hands and then hold their their professional advisors hands as well, it's very, very time consuming. And some of the times it doesn't even proceed after many many many months of work on a transaction. So, yeah.

Emelitta Da Silva: 29:09

Bit dire, bit dire, we ended on a low note. No, but as you said, there's a lot of benefits to this the favourable tax environment. So yeah, I actually quite like these these ones because they give us a bit of a challenge.

Minh Le: 29:27

I don't.

Emelitta Da Silva: 29:29

All right, guys. Well, we hope that you enjoyed the podcast today. Please make sure that you have subscribed, make sure that you rate us five stars and give us an awesome written review. As well as sharing this podcast with those that can benefit

Minh Le: 29:45

Not this podcast.

Emelitta Da Silva: 29:49

Why not?

Minh Le: 29:49

Its so confusing, SMSF

Emelitta Da Silva: 29:50

We made it simple. Tell us tell us, give us the feedback. Tell us if we made it simple for you and let us know if you had any questions at all.

Minh Le: 29:58

I'm not taking any calls. Audience, if you want to call Emelitta, call her. 1300 254, what is it? 1300254397. Yep, there you go call her. Ask her.

Emelitta Da Silva: 30:09

I'm the SMSF specialist apparently.

Minh Le: 30:13

Thank you very much.

Emelitta Da Silva: 30:14

Thanks, guys. Bye. We hope you enjoyed this episode. Please make sure that you are subscribed and following us so that you can keep in the loop with all of our upcoming episodes. We would really appreciate it if you could leave us a five star rating, a written review and to share this episode with those that can benefit. Until next time, catch you on the next episode.