Case study: purchasing a commercial property in a SMSF

Sustainable Marketing Services, a home-based Brisbane marketing company, took the plunge to use property as a tax-effective business tool.

The company, which had enjoyed continuous growth since inception thanks to its strong focus on customer service, was bursting at the seams and needed to upscale. Investigating new premises was on the agenda and it was a logical step to consider buying.

Background

The company wanted to buy its own commercial office to support its growth and avoid using profits on rent. However, the company faced a number of unexpected events, which threatened to increase costs, reduce productivity and slow growth of the business for six months. Luckily, they resorted to professional advice before it was too late.

Challenges faced:

Challenge 1. Applying for a loan for a SMSF is hard.  

Lesson: use a mortgage broker. The bank gave them the nod at the beginning. The application process took nearly two months. They almost missed the finance date. It was a complex process and required an enormous amount of documentation. Luckily, they had a mortgage broker to guide them and keep the process moving forward to approval. Without the mortgage broker, the process would have consumed even more time and taken more focus away from their business.

Challenge 2. Unexpected events and costs will arise.

Lesson: use an accountant to prepare a budget. “You don’t know what you don’t know.” Sustainable Marketing Services used their strong financial capabilities and systems to create a budget to set up a SMSF, to purchase the property and fund rent and outgoings. They even did scenario planning for different income levels to ensure the affordability.

But it wasn’t enough.

They weren’t prepared for a number of unexpected events which incurred unbudgeted expenses amounting to $10,000. The new office space needed unexpected painting. The unit suffered water damage five days after settlement which delayed moving into the new office (but not the mortgage payments). Insurance brokers and lawyers helped speed up repairs which were covered by the tenant’s insurance as the previous owners stayed on for two months. 

The external building signage from the previous tenants needed to be removed and locks and keys changed.

They self funded the extra $10,000 which created a fair bit of stress for a few months. In hindsight, they wished they had worked with the team at Wilson Teis to design more tax effective and innovative methods of funding the unexpected costs. Like many businesses, they thought they could just tighten their belts for a few months. The repair costs added to stress levels

Challenge 3. Purchasing a commercial property in a SMSF takes a lot of focus and time.

Lesson: use an accountant, financial planner, mortgage broker and insurance specialist and take some of the pressure off. Purchasing a commercial property in a SMSF is a big project. The biggest impact was a loss of focus and time on the company.

Many unexpected things went wrong. Sustainable Marketing Services’ expert planners had planned well. But even the new internet and phone service didn’t work from the due date. It took two months to get it all working and the business was still waiting two months on for its main phone line to be moved.

“There were a number of road blocks along the way. This really took the focus off growing our business. The opportunity cost was huge. I think it has put our growth back a year so that’s a cost over $100,000+. The team has also had to work longer hours to keep up with client work.”  - Maria Anderson, Sustainable Marketing Services

Key learnings

It wasn’t a great way to celebrate a move into a new office. Instead of focusing on growing the core business, the company was forced to concentrate on fixing problems so it could get back to business as usual. After nearly six months, things started to return to normal and Maria and her team are now thinking about their official opening.

If they had to do it again, they would do things differently. Top of the list would be engaging advisers to help plan, guide and support the business during its transition. The lost opportunity cost, in terms of new growth, was huge. They had to put the business and their personal lives on hold for six months. Using a team of professionals such as Wilson Teis would have enabled them to focus on what they do best … delivering marketing services and great customer service to their many clients.

Contact This email address is being protected from spambots. You need JavaScript enabled to view it., This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it. today to book a complimentary meeting to discuss purchasing a commercial property in a SMSF.

The team at the Wilson Teis family of companies can take care of all of your property needs.