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SMSF Loans: Buying Property Through Your Super

A self-managed super fund (SMSF) can borrow to buy property, but only under strict rules. The loan is called a limited recourse borrowing arrangement, or LRBA. It is set up differently from a normal home loan, fewer lenders offer it, and mistakes can be costly for your fund.

We help SMSF trustees find a lender, structure the loan and get it approved. We work alongside your accountant and financial adviser, who look after the fund itself.

Talk to us about an SMSF loan

How an SMSF loan works

Super funds are generally not allowed to borrow. An LRBA is one of the few exceptions. In simple terms:

  • The fund borrows to buy one asset, such as one property
  • The property is held in a separate holding trust (sometimes called a bare trust) until the loan is paid off
  • If the loan isn’t repaid, the lender can only claim that property, not the fund’s other assets
  • Rent goes into the fund and helps pay the loan
  • Once the loan is paid off, the property can be transferred to the fund

Because the lender’s risk is limited to one property, SMSF loans usually need a bigger deposit and carry higher rates than a standard investment loan. Read the LRBA explained.

What your SMSF can and can't buy

Residential property: your fund can buy a house or unit as an investment, but you, your family and other related parties can’t live in it or rent it, even at market rent. The fund also can’t buy residential property from you or a relative.

Commercial property: the rules are more flexible. Your fund can buy business premises from you and lease them to your own business, as long as it is at market value and market rent. This is popular with small business owners. See SMSF commercial property loans.

Improvements: borrowed money can be used for repairs and maintenance, but not to improve or develop the property. You can’t, for example, use the loan to add a granny flat or build on vacant land.

What lenders usually look for

  • Deposit: commonly 20% to 30% or more of the price, plus costs
  • A healthy fund balance: many lenders want money left in the fund after settlement, as a buffer
  • Fund income: rent plus your employer and personal contributions must cover the repayments
  • The right structure: a correctly set up SMSF and holding trust, often with a company as trustee

Each lender has different rules, and many of the big banks stopped SMSF lending some years ago. Most SMSF loans now come from specialist and non-bank lenders. See SMSF loan eligibility and SMSF loan rates and lenders.

Is buying through super right for you?

It can work well for some people, especially business owners buying their own premises. For others, buying in their own name makes more sense. Things to weigh up:

  • Tax: rent and capital gains are taxed at lower rates inside super
  • Access: the property is locked away until you can access your super
  • Costs: SMSFs have running costs, and SMSF loans cost more
  • Diversification: one property can be a large share of your fund

Read SMSF vs buying in your own name.

Important: whether an SMSF or a property is right for your retirement is a financial advice question. Speak to a licensed financial adviser and your accountant before you decide. Be wary of anyone who pushes you to set up an SMSF just to buy a property they are selling.

How we help

  1. We look at your fund’s balance, contributions and the property you have in mind
  2. We compare SMSF lenders and their rules, deposit and rate
  3. We work with your accountant so the SMSF and holding trust are set up the way the lender needs
  4. We manage the application through to settlement
Book an SMSF loan chat

FAQs

Can I live in a property owned by my SMSF?

No. Neither you nor any related party can live in or rent a residential property owned by your SMSF.

Can my SMSF buy my business premises?

Generally yes, if it qualifies as business real property and is bought at market value. Your business then pays market rent to the fund.

Can I use an SMSF loan to renovate?

Borrowed money can only be used for repairs and maintenance, not improvements. Other money in the fund may be used for improvements, as long as the property doesn’t become a different asset.

Albert Waldron is a Credit Representative (407514) of Australian Finance Group Ltd, Australian Credit Licence 389087. This is general information only and does not take into account your personal circumstances. Please seek advice before acting. SMSF loans are complex. We arrange the loan only. Get advice from a licensed financial adviser and your accountant about whether an SMSF or property investment suits you.