SMSF and Property: Guide to Securing a Home + Case Studies

May 10, 2024
SMSFs and Property: Your Guide to Securing a Home...?

Key takeaways:

  • SMSFs offer personalized control for retirement investments, including real estate.
  • You can buy residential property through your SMSF now but cannot live in it until the age of 60.
  • Strict compliance with the Sole Purpose Test ensures investments benefit retirement.
  • Limited Recourse Borrowing Arrangements allow SMSFs to safely borrow for property purchases.

The whole SMSF and property concept can be confusing for many. But once you get it, you can actually make your super work harder for you.

Imagine using your retirement savings not just to fund your golden years but also to own property right now.

This guide will teach you how Self-Managed Super Funds (SMSFs) can be your pathway to property investment, opening doors to potential benefits beyond standard retirement planning.

What is an SMSF?

An SMSF is more than just a retirement fund; it’s a personal investment platform that gives you the control to invest in a diverse range of assets, including buying real estate.

Tailored for those who are keen to manage their own superannuation, SMSFs can be a powerful tool to buy property, whether for investment purposes or as a future residential spot.

Why Consider Property Investment Through an SMSF?

Investing in property through an SMSF isn’t just about buying bricks and mortar; it’s a strategic move towards potentially higher returns and securing your financial future.

Let’s break down the rules, costs, benefits, and potential pitfalls of using your SMSF to invest in property, ensuring you make informed decisions that align with your long-term financial goals.

Breakdown of SMSF Property Investment Rules

Investing in property through your SMSF is tightly regulated to ensure that the fund’s primary goal—securing your retirement—remains in focus.

Here’s a breakdown of the key rules you need to know:

The Sole Purpose Test

What is it?

  • Purpose: This is the golden rule for SMSF investments. It dictates that your SMSF must solely exist to provide retirement benefits to its members. In simpler terms, you can’t use your SMSF to buy a property you plan to live in yourself or give any benefit to yourself or related parties.

Restrictions on Property Acquisition

  • No living in the property: You, your family, or anyone related to an SMSF member cannot reside in the property owned by the SMSF. It’s purely for investment purposes.
  • No renting to related parties: The property cannot be rented to you, your family, or related parties. This includes adult children, parents, siblings, and their spouses.
  • Market value transactions: If the SMSF acquires or sells a property to/from a related party, it must be done at arm’s length and market value. This ensures the transaction is fair and doesn’t benefit any member personally.

If you are interested you can read more about penalties for non-compliance in our full guide.

What’s “Related Party”?

The definition of a related party is broad and includes:

  • Spouses and de facto partners
  • Dependants
  • Blood relatives (parents, siblings, children, etc.)
  • Entities you control (companies, trusts)

Cost Considerations in SMSF Property Investments

Understanding the full spectrum of costs associated with SMSF property investments is crucial for making an informed decision. Here’s what you need to account for:

Breakdown of Potential Costs

Cost TypeDescription
Upfront FeesLegal, advice, stamp duty
Ongoing CostsMaintenance, insurance, rates
CommissionsBank fees, potential adviser kickbacks

Discussion on Impartial Advice: It’s vital to seek impartial advice to navigate these costs effectively.

Referral networks among advisers can sometimes lead to biased advice, emphasizing the importance of consulting a licensed financial adviser with proven integrity.

Read our article to learn more about using your super to buy a house.

Borrowing to Purchase Property with an SMSF

Using borrowed funds to invest in property via your SMSF is allowed under specific conditions known as Limited Recourse Borrowing Arrangements (LRBA).

Here’s what you need to know:

Limited Recourse Borrowing Arrangements (LRBA)

Key Points:

  • Definition: An LRBA allows an SMSF to borrow money for property investment, but the lender’s recourse is limited to the property itself in case of default.
  • Property Ownership: The property must be held in a separate trust until the loan is paid off.
  • Loan Conditions: Strict conditions apply to ensure that the fund’s assets are protected.

Strategic Considerations:

  • Managing loan repayments requires careful planning to maintain fund liquidity.
  • It’s crucial to assess the impact of loan obligations on your fund’s financial health.

For further details on how SMSFs can use their superannuation for purchasing a house, explore this article: Using your super to buy a house.

Risks Involved with SMSF Property Investments

Investing in property through your SMSF comes with several risks that need careful consideration:

List of Potential Risks:

  • Financial Risks: High entry and exit costs, ongoing maintenance expenses, and the necessity for substantial cash flow management.
  • Legal and Compliance Risks: Strict compliance with SMSF regulations is mandatory. Non-compliance can lead to heavy penalties and affect the fund’s tax concessions.
  • Tax Implications: Losses from property investment can’t be offset against other taxable income outside the fund.

Capital Gains Tax Considerations:

  • Understanding the implications of capital gains tax is crucial when planning to sell the property.
  • The fund might face a significant tax liability if the property is sold at a gain.

For those considering transferring property out of an SMSF, it’s important to understand the specific rules and potential consequences: Transferring property out of SMSF.

Getting Professional Advice

Before diving into SMSF property investment, consulting with a licensed financial adviser is essential. Here’s how to ensure you receive the best possible advice:

  • Verify Credentials: Check the adviser’s credentials through ASIC Connect’s Professional Registers.
  • Ask the Right Questions: Ensure transparency and suitability of advice by asking detailed questions about fees, risks, and strategies.

If you are contemplating how to live in your SMSF property legally, read more here: How to live in your SMSF property.

Case Study: Building a Nest Egg Through SMSF

Sarah (38) and Michael (42) want to boost their retirement savings. They explore SMSFs and think property might be a good fit.

1. Learning the Ropes: They research SMSFs and property investment. They attend a beginner’s seminar and check the ATO website for the rules.

2. Getting Help: They consult an SMSF financial advisor. The advisor assesses their situation and explains the pros and cons of SMSF property.

3. Setting Up Shop: They don’t have an SMSF, so the advisor helps them establish one. This includes choosing a provider and registering with the ATO.

4. Finding the Right Place: They know the property can’t be their home. With the advisor’s help, they find a 2-bedroom unit in a growing suburb with good rental potential.

5. Financing & Strategy: They use some of their super for a deposit and explore SMSF loan options to keep things affordable.

6. Buying & Managing: The SMSF buys the property. They hire a property manager to handle tenants, rent, and maintenance, ensuring everything is arm’s length.

The Result: Sarah and Michael successfully invest in property through their SMSF. The rental income helps grow their retirement savings at a concessional tax rate. They understand the ongoing responsibilities and are committed for the long term.

For more insights into leveraging your superannuation for property investments, consider reading about whether it’s worth buying property with your super: Is it worth buying property with your super?.


Investing in property through an SMSF can be a rewarding strategy for enhancing your retirement savings, provided it is done with diligence and careful planning.

The potential to grow your super fund through real estate investments offers an appealing avenue for those looking to diversify their retirement assets. However, the complexities associated with SMSF property investment demand a well-informed approach.


  • Compliance and Planning: Always adhere to the rules set by the ATO and plan thoroughly to ensure your investment decisions align with the sole purpose test.
  • Seek Professional Advice: The importance of unbiased, professional financial advice cannot be overstated. It’s crucial to consult experts who understand the nuances of SMSF investments.

For those exploring how to leverage their superannuation to acquire a home, detailed guides and tips can be found here: Using your super to buy a house.

Lastly, while SMSF property investment opens up unique opportunities, it comes with its set of challenges and responsibilities. Ensure you are well-prepared to manage them to make the most out of your investment.

You can read more about the conditions and methods for this process in our comprehensive guide on withdrawing your super to buy a house.

Frequently Asked Questions on ‘SMSFs and Property’

What does SMSF mean?

SMSF stands for Self-Managed Super Fund. It is a type of superannuation fund that provides members with control over their retirement savings and investment decisions.

What is the in-house asset rule for a self-managed super fund?

The in-house asset rule for SMSFs states that the fund cannot use more than 5% of its total assets to lend to, or invest in, related parties of the fund. This includes assets that could provide financial assistance to a member or their relatives.

What is an SMSF investment strategy?

An SMSF investment strategy is a detailed financial plan tailored to the current and future financial needs of each fund member. It ensures the fund’s investments align with members’ retirement goals and complies with legal requirements.

What assets can be transferred into an SMSF?

Typically, business real property, such as properties used entirely for business purposes, can be transferred into an SMSF. Residential properties used as rentals or personal residences usually cannot be transferred into the fund.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consulting with a qualified financial advisor and SMSF specialist is crucial before making any investment decisions.

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