Can You Buy Property Through Your SMSF? A Plain-English Guide

Buying property through a self-managed super fund (SMSF) has become a popular way for Australians to take more control of their retirement savings. Done well, it can be a solid long-term strategy. Done poorly, it can be expensive and create problems with the tax office.

The short answer is yes, your SMSF can buy property, and it can borrow to do it. But there are strict rules about what it can buy, who it can buy from, how the loan is structured and how the property is used.

This guide explains the basics in plain English. It's general information only, so you should always get advice from your accountant or a licensed financial adviser about whether an SMSF property strategy is right for you.

An SMSF is a private superannuation fund that you manage yourself. It can have up to six members, and every member is usually a trustee, or a director of the fund's corporate trustee.

As a trustee, you're responsible for making sure the fund follows superannuation law. That includes how it invests, how it borrows, and how it reports to the Australian Taxation Office (ATO).

Every SMSF investment must pass the sole purpose test. In simple terms, the fund must be run solely to provide retirement benefits to its members.

That means you can't buy a property through your SMSF to:

• Live in it yourself
• Rent it to a family member or relative
• Use it as a holiday home

The property must be a genuine investment for the fund.

Residential property

Your SMSF can buy residential property, such as a house, townhouse or apartment, as an investment. It must be rented to people who aren't related to you, at market rent.

Your SMSF generally can't buy residential property from you or a related party, such as a family member or a business you control.

Commercial property

Commercial property, such as an office, warehouse or shop, is more flexible. Your SMSF can buy what's called business real property from a related party, and lease it to your own business, as long as it's at market value and on commercial terms.

This is a common strategy for business owners. Your business pays rent to your super fund instead of a third-party landlord. If this sounds relevant, have a look at our page on commercial loans too.

An SMSF can borrow to buy property, but only through a specific structure called a limited recourse borrowing arrangement, or LRBA.

Here's how it works:

1. A separate trust is set up, often called a bare trust or holding trust.
2. The holding trust buys the property and holds it on behalf of the SMSF.
3. The SMSF makes the loan repayments, using its contributions and rental income.
4. Once the loan is paid off, the property can be transferred to the SMSF.

The "limited recourse" part means that if the loan goes bad, the lender can only claim the property. It can't touch the fund's other assets. Because this is riskier for the lender, SMSF loans usually have tighter rules than standard investment loans.

The single acquirable asset rule

An LRBA can only be used to buy a single acquirable asset. In practice, that usually means one property on one title. If a property sits across two titles, extra care is needed.

Improvements versus repairs

This is one of the trickiest rules. While a property is held under an LRBA, borrowed money can be used to repair or maintain it, but not to improve it in a way that changes its character.

For example, fixing a leaking roof is usually fine. Adding a second storey or knocking down the house to build a new one usually isn't, at least not with borrowed funds. Talk to your accountant before planning any significant works.

SMSF lending is a specialist area. Fewer lenders offer it, and their policies vary a lot. Most will look at:

Lenders want to be confident the fund can keep making repayments even if the property is vacant for a while, or if contributions change.

SMSF property comes with costs beyond the purchase price:

• Stamp duty and legal fees
• Setting up the holding trust
• SMSF accounting and annual audit fees
• Loan establishment fees
• Property management, insurance, rates and maintenance

These costs eat into returns, so it's important to understand them upfront.

An SMSF property strategy can suit people who:

• Have a healthy super balance
• Want a long-term investment with steady rental income
• Own a business and want their fund to own its premises
• Are comfortable with the responsibilities of being a trustee

It may not suit you if:

• Your super balance is relatively small
• You may need to access your money soon
• You want flexibility to sell quickly or renovate heavily
• Having a single large asset would leave the fund poorly diversified

A good SMSF property purchase usually involves several professionals working together:

• Your accountant or SMSF specialist, for compliance, tax and structure
• A financial adviser, if you want personal advice on the strategy
• A solicitor, for the trust deed, holding trust and contract
• A finance broker, to find a lender whose SMSF policy fits

We don't provide financial or tax advice about whether an SMSF strategy is right for you. What we do is help you find and secure the right loan once you and your adviser have decided to proceed. We're happy to work directly with your accountant to keep everything aligned.

SMSF loans are one of our team's specialist areas. We help trustees:

• Understand what lenders will need before they commit to a property
• Compare SMSF lenders on rate, deposit and liquidity requirements
• Coordinate with accountants and solicitors on the structure
• Manage the application through to settlement

We work with SMSF trustees across Melbourne and Australia-wide. Learn more about our SMSF loans, or book a free chat to talk through your plans.