YOUR GUIDE TO CONVEYANCING AND BUYING A PROPERTY IN A SELF MANAGED SUPER FUND
To purchase a property, you’ll need the support of a solicitor or licensed conveyancer who has an expert understanding of property law.
Over 60 percent of all legal negligence claims are a result of conveyancing mistakes, so it’s essential that you get the support of a professional who can protect your interests if any part of the property transaction is disputed.
The term ‘conveyancing’ refers to the transfer of property title from a seller to a buyer. This process varies between states and territories and involves a number of complex legal and regulatory transactions.
You can choose to retain a solicitor, who holds a law degree, or a conveyancer who is a licensed practitioner with an advanced diploma that focuses on property law. Conveyancers can act in relation to all property matters, including the sale and purchases of businesses.
THE CONVEYANCING PROCESS
Although conveyancing laws vary between states and territories, in general, the process is quite similar:
The seller must have a contract of sale prepared before offering a property for sale. It should be prepared by a legal professional and include all the documents, certificates and disclosures relevant to the property.
If you’re buying a property, you can ask to review the contract of sale after you’ve inspected the property, liaised with the real estate agent and feel ready to take the next step.
The contract of sale is a legal document for one of the biggest purchases you are likely to make in your lifetime, so it’s essential that your solicitor or conveyancer reviews the contract to ensure it’s acceptable.
They may provide feedback on the contract, including:
- Variations in the contract, such as deposit amount or settlement date
- Confirmation on whether the seven-year home warranty for structural problems applies to the property
- Searches to ensure the land and property is depicted accurately in the contract
- Advice to help you prepare for any tax implications or changes to your estate plan
- Clarification of what’s included in the contract, such as the dishwasher, alarm or air-conditioning
- Research to determine any future zoning or development plans that may affect the value of the property
- Liability clauses for things like flooring or appliances that have been installed incorrectly
- Assessment of strata reports to give you a good understanding of costs, insurance, valuation and special levies that may reveal problems or significant ongoing costs associated with the property.
Make an offer when you’re ready to buy, you will provide a letter of offer to the seller’s real estate agent, which outlines how much you are willing to pay and any changes to the contract conditions such as deposit amount or settlement date.
You may be required to pay a holding deposit at this stage, which is refundable if the seller decides not to proceed with your offer. The seller can receive a number of offers and negotiate on the price and conditions of sale, before deciding to exchange contracts with their preferred buyer.
At an auction, you are required to purchase the property if you are the highest bidder and will sign the contact of sale and pay the deposit (usually 10 percent of the purchase price) straight away.
It’s important to review the contract with your solicitor or conveyancer and have your finance prepared before you bid at an auction.
The next stage is the exchange of contracts between the buyer and seller.
You will need to pay the full deposit, which is usually 10 percent of the sale price and is held by the real estate agent, solicitor or conveyancer until settlement.
You should arrange insurance at this time, as you are the legal owner of the property from the date of contract exchange, even though responsibility for damage to the property lies with the seller up until the date of settlement.
Cooling off period
After contracts are exchanged, you may have a cooling off period specified in the contract. This means you can revoke the contract at any time before the end of the cooling off period.
Cooling off periods do not apply to properties sold at auction or in certain states, so it’s important to have your solicitor or conveyancer check these details when reviewing the contract of sale.
Your solicitor or conveyancer will prepare the transfer document, which will be stamped and registered as a legal document. This settles the transaction and provides you with the title deed to the property.
You will need to pay the balance of the property price, including Stamp Duty, at this time. Settlement can be negotiated by the buyer and seller, but is usually around six weeks from the date of purchase.
BUYING PROPERTY IN A SELF MANAGED SUPER FUND
Buying an investment property within a Self Managed Super Fund (SMSF) is very different to a normal property transaction, due to the strict regulations around SMSFs.
By law, your property investment must be purchased solely to provide retirement benefits to members and can’t be acquired from a related party of a member, or be lived in or rented by a member or a related party of any member. The purchase must also be aligned with the overall investment strategy of your SMSF.
First, you’ll need to ensure your SMSF has the necessary powers to borrow and invest in property. It must also have enough cash flow to service loan repayments and other costs over the life of the investment.
If you borrow funds to purchase the property, it will be held in a separate trust until the loan is paid and SMSF trustees receive any investment returns earned by the asset during this time.
If you default on the loan, the lender’s rights are limited to the asset held in the trust, so the remaining assets held in your SMSF are protected.
Once your SMSF has paid off the loan, you can move the property out of the holding trust and acquire legal ownership of the asset.
Investing in property through an SMSF requires expert advice. Talk to your SF Wealth financial adviser to find out the best way to incorporate direct and indirect property into your investment portfolio.
This information is general in nature and does not take into consideration your personal circumstances. Talk to your professional adviser for property investment advice that’s right for you.