SMSF Property Loans

Buying property through your SMSF

A self-managed super fund can borrow to buy property, but only under strict rules, and only a handful of lenders still offer SMSF loans. Most major banks have stepped away from SMSF lending, so finding the right specialist lender and getting the structure right from the start matters more than usual.

We arrange the loan. Your accountant or licensed financial adviser advises on whether buying property in super suits you. We work alongside them through every step.

How SMSF borrowing works

An SMSF loan must be set up as a limited recourse borrowing arrangement (LRBA). In practice:

• The property is held in a separate trust (often called a bare or holding trust) until the loan is repaid. A separate company usually acts as trustee of that trust.
• The lender can only claim the property if the loan isn’t repaid, not the fund’s other assets. That’s why lenders are more cautious and rates are usually higher.
• The loan must be for a single asset, such as one property or one title.
• The fund must meet the sole purpose test. The property has to be held to provide retirement benefits for members.

Residential vs commercial property

Buying your business premises through your SMSF and leasing it back to your business is one of the most common SMSF strategies. The lease must be at market rent and on commercial terms.

What lenders look for

• A corporate trustee for the SMSF. Many lenders require it, and it’s generally simpler.
• A larger deposit. SMSF lenders usually lend less of the property’s value than standard home loans. Expect to need a bigger contribution from the fund.
• Cash left in the fund after settlement. Most lenders want a buffer of cash (liquidity) remaining in the SMSF to cover repayments and costs.
• The fund’s contributions and rental income need to comfortably cover the repayments.
• Proper documentation: the trust deed, the holding trust deed, recent fund financials and your adviser’s documentation.

Improvements: what you can and can’t do

An SMSF can repair and maintain a property it has borrowed to buy. It can’t use borrowed money to improve it, and it can’t change it into a different kind of asset (for example, knocking down a house to build units) while the LRBA is in place. Talk to your accountant before planning any renovation.

Costs to plan for

• Setting up the holding trust and its trustee company
• Legal fees for the LRBA documents
• Stamp duty and purchase costs
• Lender fees, which are often higher than for standard loans
• Ongoing SMSF administration, audit and property management

Example: buying business premises through an SMSF

A business owner asked us to look at financing a commercial property through their SMSF, which their business would then lease from the fund.

SMSF lending has extra requirements beyond a standard commercial loan, so we worked through the proposed structure and lender requirements with the client’s accountant and advisers before approaching lenders.

After comparing the specialist SMSF lenders, we arranged finance of around $1.505 million for a commercial property valued at about $2.15 million, a structure that suited both the fund’s strategy and the lender’s requirements.

Client details have been changed or omitted for privacy.

Frequently asked questions

Can my SMSF buy a house I’ll eventually live in?

Not while it’s in the fund. Neither you nor a relative can live in a residential property owned by your SMSF.

Can my SMSF buy my business premises?

Yes, if it qualifies as business real property and is leased to your business at market rent on commercial terms.

How much can an SMSF borrow?

It depends on the lender, the property type and the fund’s balance and income. SMSF lenders generally lend a lower percentage of the property’s value than standard home loans. We’ll check across the specialist lenders on our panel.

Do I need a financial adviser?

We strongly recommend it. Whether to buy property in super is a financial advice decision. We can introduce you to an accountant or adviser who works with SMSFs.

Talk to Joe about SMSF lending

Call (07) 5538 8334 or book a time with Joe.

General information only. It does not take into account your objectives, financial situation or needs. Fast Funding provides credit assistance only and does not provide financial product, superannuation or tax advice; seek advice from a licensed financial adviser and your accountant before setting up an SMSF or buying property through one. Lending criteria, fees and charges apply, and all loans are subject to lender approval. Fast Funding (Australian Credit Representative Number 397509) is a Corporate Representative of BLSSA Pty Ltd (Australian Credit Licence 391237).