Can you refinance a Physician Loan or Mortgage?
Dear fellow professionals,
Dr. Sophie and her Hubbie just left my office very happy indeed.
They have a commercial loan of $800,000 owing on their surgery that is being serviced over a 15 year-term.
We just signed docs to refinance this loan, using their owner-occupied property as collateral, so they can get the owner-occupied variable rate of 2.59%.
This will immediately save them over $11,000 in interest every year. Big deal, you say?
Stretching the amount outstanding over a 30-year term allows them to pay their home loan off faster, which is of course the nasty loan they must service with their after-tax dollars.
But there’s more!
My accountant is calling them tomorrow to get the ball rolling to set up an SMSF to acquire this surgery from them.
Even though it’s worth $2M, stamp duty is only $500 to switch it across because it’s currently held in their personal names and is an NSW business real property.
It’s worrying how many medics don’t know that.
There’s also no Capital Gains Tax thanks to Small Business Tax Concessions. Their net assets do not exceed $6M and it will not exceed their lifetime caps.
Rather than effectively paying 47% tax on the $80,000 rent, the 15% tax rate in SMSF will save them $25,600 every year.
When they hang their boots up, their SMSF tax rate will be 0%, saving them a whopping $37,600 each year.
Plus, it ticks the asset protection box. It’s always safer tucked away in Super.
I won’t mention that the fact that holding the property in their SMSF saves them another $10,000 every year due to the brand-new Land Tax free threshold, or you just won’t believe me.
To keep things simple, their in-species (notional) non-concessional contribution of $600K means the SMSF need only borrow $1.4M. Rather than using a bank, they’re going to lend it to their Super.
Watch my YouTube clip “Bank your own SMSF”
For those of you who might be looking for a commercial property to operate your practice from, but are not in a position to buy it in an SMSF at the moment, I will advise you to buy it in personal names, so that in the future you can slide it easily into Super when the time’s right.
Buying it in a company or Unit Trust is not generally advised.
For those of you who do own your work premises’ in a Trust (and I know there’s loads of you), don’t be too upset..
Once you pay off the loan completely, your Super can over the years (or quickly if you have a stack) eat into the ownership of the Trust. Remember the best thing about Unit Trusts is you can play around with ownership without any Stamp Duty.
Given the iChoice commercial premises here in Sydney is held in my SMSF, I am well aware of both the benefits and pitfalls – and I’m always happy to share with you what I know.
My services are free for anyone who wants to run anything at all past me. I respect so much what you all do for a living – helping medical professionals with all things finance and property are what I love.