How To Buy A Souvlaki Shop- Owned By Your SMSF

Cousins Theo and Nick hadn't ever thought of buying a commercial property, until they noticed the little shop next to their gym was for sale for $2 million.?The tenant was a little cafe,?paying $70,000 pa + outgoings.

The lease only had a year left, at which point the tenant can take up their option to extend it for a further 5 years.

A 3.5% yield doesn't?sound great,?notwithstanding the property was well located in the main street. Often, a low yield suggests the property might have some?development potential, which given it was freehold and near the train station, is highly likely, but not any time soon (that's another whole story in itself).

The fact that the tenant was only tied in for another year was also concerning, which was a factor as to why it hadn't sold yet. The agent even admitted, that buying this shop is probably better suited for a potential owner-occupier (which is often the case, as?Tenancy-Risk?doesn't come into play).

They walked in to speak with the cafe owner, Sally, and explained that they were interested in buying the place and asked her

(1)?did she have any gossip on why the place was being sold,?(2)?did she know if there were serious buyers sniffing around,?(3)?is the cafe performing well,?(4)?why wasn't she herself interested in buying the premises and?(5)?whether she intends on taking up the 5-year option.?Good questions!

Sally said the business was OK, mainly due to the gym junkies next door buying protein shakes. She would extend the lease next year if need be to protect her investment in the recent fit out, but would 'walk' right now for $100,000. Theo and Nick looked at each other and decided to go to the pub to discuss, hmm.?During their first schooner, they had decided that they were going to quit their jobs, buy the building, buy the cafe from Sally and turn it into a souvlaki shop. So they did.

This is how we structured the lending for the purchase of the building?(which will costs $2 million + $80,000 Stamp Duty) and also getting an extra $220,000 available for them for the rest ($100,000 to buy the business and another $120,000 for set up costs);

The bank was happy to lend 80% to their Unit Trust, so the other 24% needs to be borrowed from elsewhere - same with the extra funds they need. We set up the splits for Theo against his home. Nick was lucky enough for his mum to provide him his loans, which have been properly documented by their solicitor.?

One day, in the future, when Nick might own a property, these loans can be 'refinanced' by the bank & re-established, keeping the good,?deductible?debt alive.

Acquiring commercial property in a Self-Managed Superfund is often the best way, but for a few reasons it wasn't in this this case (I'll get to that in a minute).?Their accountant and I recommended a Unit Trust be established to buy this, with 60 units (30 each).

These are the reasons why:

*?Land Tax thresholds of the Unit holders are taken into account, so land tax will be minimal here

*?In the event that one of the boys want to buy the other out, for whatever reason in the future, there will not be any stamp Duty to pay, since it's not a land rich Unit Trust. They'd simply be buying the others'?units?

*?60 units was chosen,?because that number is divisible by 2, 3, 4, 5 and 6, in case others want to buy into the property one day

*?there is some level of?asset protection?by buying in a Unit Trust

*?ability to issue additional units for a cash injection to a third party to capitalise on the buildings development potential, if desired

*?ownership of the units and any potential transfers between the boys would be within the?Small Business Capital Gains Tax Concessions.

The Directors of the Unit Trust are Theo & Nick.?You see, Theo's wife owns their family home, and businesspeople know to keep things separate (Asset Protection #101). When it came to setting up the actual business,?Nick was hell-bent on operating through a Family Trust.?I wanted to agree with him, but that would just make us both wrong.

So many businesses do in fact operate through a Trust, so you might want to consider what these guys did.?That's because the ATO have recently opened a window for people to?restructure?their businesses, free of any Duty and CGT, if you realise it wasn't the best way to set it up in the first place.?Maybe ask your accountant.

They set up a standard Pty Ltd, to run the business, with only Nick as the Director (Asset Protection #202), naturally with a well drafted shareholders agreement in place. They established a Family Trust each, where each owned 50% of the business.?See

They still get much of the flexibility a Family Trust provides, just by having their trusts as shareholders. Now, if one of their staff or a mate wants to buy into the business, they can, buy buying some of the?shares?from the Trusts.

You can't sell?a bit?of a Family Trust.?This way is better from an Estate Planning perspective too!

Now they had to name their business;?something short, memorable, and ideally emphasising their selling point.

In fact, they first needed to figure out what their actual point of difference is, rather than just being another souvlaki shop. They understand that the best marketing strategy is to?harp on the single thing that differentiates their business from competitors.?

Kinda like?Snap Printing?doesn't pretend to be the best, the cheapest or the closest. They may be great at the other things too, but often the best advertising focusses on a single trait, like 'the burgers are better'.

Maybe their proximity to the train station is a selling point, sure it is, but the problem was that that that business name?Souvlaki Station, and the domain name, had already been taken :(

Theo stood outside the shop watching people leave the gym, exhausted and hungry.?Light Bulb moment!

Theo and Nick will be the worlds first to offer a healthy version of souvlaki, by using low fat yogurt, leaner meat, and a specially made wholemeal pitta bread. What to name their business was obvious.?And?the domain name was available, even the .com!

Now we must admit, we always change the?names?of the people we take care of, when sharing their stories. But in this case, we changed more than their names! The above story is how we recently helped two dentists establish a surgery in Melbourne, with a similar structure.

This means the name?leansouvliaki.com?is actually still available for anyone who might want to give it a crack.?Lol!?

We better explain why we mentioned a Self-Managed Superfund in the subject line. To you?medical professionals who wish you had bought your surgery inside Super back in the day, and hold it in a Unit Trust, this will be music to your ears:?

Once there's no debt on the building, our clients can each set up a SMSF and slowly buy the units of themselves, bit by bit. It can get to the point where even though the property is held in a Unit Trust, the full ownership can be held in their Superfunds, without breaching the SIS Act, provided certain criterea are satisfied.?This way, in retirement, the rent received will be tax free.

As Credit Advisors, we feel the need to understand a lot more than just finance.?But getting ahead really does depend on how the bank see you, so a big part of what we at iChoice do is to understand the bank's policies?inside-out.?Knowledge is power.?We get asked everyday by people what their borrowing Capacity is, which is where everyone really should start.?

So our most recent video is exactly about that; a few secrets about how to get the most out of the banks, by our Managing Partner, Jason Khoury.?

Over the weekend, we encourage you to visit the?iChoice YouTube Chanel, or just click the image below:?

We hope you have an awesome Easter weekend and get to sneak in a few days of rest as well?~?take it easy ~?