# SMSF Property Loans: Complete Guide to Borrowing Through Your Super
Self-Managed Super Funds (SMSFs) can be powerful vehicles for property investment, but the lending rules are complex. Here's everything you need to know about SMSF property loans in Australia.
## What is an SMSF Property Loan?
An SMSF property loan allows your super fund to borrow money to purchase investment property. The property is held in trust until the loan is repaid, then transferred fully to your SMSF.
**Key Point**: This is called a Limited Recourse Borrowing Arrangement (LRBA), and it's the only way SMSFs can legally borrow money.
## Why Invest in Property Through Your SMSF?
**Tax Advantages:**
- Rental income taxed at just 15% (vs up to 47% personally)
- Capital gains taxed at 10% if held >12 months
- **Zero tax** in pension phase (age 60+)
**Example**: $500,000 property with $30,000 annual rent
- Personal tax (45% bracket): $13,500 tax
- SMSF (accumulation): $4,500 tax
- SMSF (pension): $0 tax
- **Annual saving**: $9,000-$13,500
## SMSF Property Loan Requirements
### Fund Requirements:
1. **Minimum fund balance**: $200,000+ (preferably $300,000+)
2. **Trustee number**: At least 2 trustees or corporate trustee
3. **Compliant trust deed**: Must allow property investment and borrowing
4. **Investment strategy**: Property must fit documented strategy
5. **Clean compliance history**: No ATO penalties or violations
### Property Requirements:
1. **Investment only**: Cannot be lived in by members or relatives
2. **Single asset**: LRBA must be for one property only
3. **Cannot improve**: Major renovations prohibited during loan term
4. **Arms-length transaction**: Cannot buy from related parties
### Borrowing Requirements:
1. **Deposit**: 30-40% minimum (LVR typically 60-70%)
2. **Rental serviceability**: Rent must cover loan repayments
3. **Fund cash reserves**: Sufficient for maintenance, rates, vacancy
4. **Limited recourse**: Lender can only claim the property, not other fund assets
## SMSF Lenders in Australia
**Major Banks** (stricter, better rates):
- Commonwealth Bank
- Westpac
- NAB (via brokers)
Rates: 5.5-7.0% p.a.
LVR: Up to 70%
Minimums: $50,000+
**Private Lenders** (more flexible):
- Better for complex situations
- Consider fund with lower balances
- Faster approvals
- Accept wider property types
Rates: 7.0-10.0% p.a.
LVR: Up to 70%
Minimums: Negotiable
## Costs of SMSF Property Investment
**Upfront Costs:**
- SMSF setup: $1,000-$2,500 (if not established)
- Legal (trust deed update): $500-$1,500
- Property purchase costs: ~3-5% of property value
- Stamp duty: Varies by state (no first home buyer exemptions)
- Bare trust setup: $500-$1,000
**Ongoing Costs:**
- SMSF administration: $2,000-$3,500 p.a.
- SMSF audit: $500-$1,000 p.a.
- Accounting/tax returns: Included or $500-$1,000
- Property management: 5-8% of rent
- Property expenses: Rates, insurance, maintenance
**Total Annual Cost**: $4,000-$7,000 minimum
## Step-by-Step SMSF Property Purchase Process
**Step 1: Establish SMSF (if needed)**
- Engage SMSF specialist accountant/administrator
- Set up compliant trust deed
- Register with ATO
- Open SMSF bank account
- Time: 2-4 weeks
**Step 2: Build Fund Balance**
- Roll over existing super
- Make contributions (within caps)
- Target minimum $200,000
- Time: Varies
**Step 3: Document Investment Strategy**
- Update to include property investment
- Document why property fits strategy
- Get trustee approval
- Time: 1 week
**Step 4: Arrange Pre-Approval**
- Engage SMSF specialist broker
- Prepare fund documents
- Get loan pre-approval
- Time: 2-4 weeks
**Step 5: Find Property**
- Use buyer's agent or search yourself
- Must fit investment criteria
- Cannot be personal use
- Get building/pest inspections
- Time: Varies
**Step 6: Set Up Bare Trust**
- Engage property lawyer
- Establish bare trust (custodian trust)
- Property held until loan repaid
- Time: 1-2 weeks
**Step 7: Formal Loan Approval**
- Submit property details to lender
- Full valuation ordered
- Final approval issued
- Time: 2-3 weeks
**Step 8: Settlement**
- SMSF (via bare trust) purchases property
- Loan funds released
- Property registered to bare trust
- Rental management begins
- Time: 4-6 weeks
**Total Timeline**: 3-6 months from start to settlement
## Common SMSF Property Mistakes to Avoid
**1. Insufficient Fund Balance**
Borrowing with fund balance <$200,000 leaves insufficient buffer for costs, vacancies, and loan serviceability.
**2. Buying Property from Related Parties**
Illegal to purchase from SMSF members, relatives, or related trusts. Severe ATO penalties apply.
**3. Personal Use**
Cannot live in the property or rent to family members. Must be genuine arms-length investment.
**4. Ignoring Liquidity**
Property is illiquid. Ensure sufficient cash in fund for members nearing retirement.
**5. Over-Borrowing**
High LVR reduces flexibility and increases risk if property values fall or vacancies occur.
**6. Major Renovations**
Can only perform minor repairs during LRBA. Major improvements prohibited until loan paid off.
## SMSF vs Personal Property Investment
| Factor | SMSF Property | Personal Property |
|--------|---------------|-------------------|
| **Tax on rent** | 15% (0% in pension) | Up to 47% |
| **Tax on gains** | 10% (0% in pension) | 50% discount + marginal rate |
| **Deposit required** | 30-40% | 10-20% |
| **Interest rates** | 5.5-10% | 5.5-7% |
| **Access to funds** | Only in retirement | Anytime (if equity) |
| **Negative gearing** | No benefit | Tax deduction on losses |
| **Setup costs** | $2,000-$5,000 | Minimal |
| **Annual admin** | $2,000-$4,000 | Minimal |
**Best for SMSF**: High income earners ($120,000+), nearing retirement (age 55+), long-term hold strategy
**Best for Personal**: Younger investors, using negative gearing, want access before retirement
## Is SMSF Property Right for You?
**You're a Good Candidate If:**
- Super balance $250,000+
- High income (marginal tax rate 37-45%)
- Age 45+ (retirement planning horizon)
- Comfortable with property investment
- Willing to pay SMSF admin costs
- Long-term hold strategy (10+ years)
**Not a Good Fit If:**
- Super balance <$200,000
- Young (decades until retirement)
- Need access to property equity
- Want to negatively gear
- Uncomfortable with SMSF compliance
- First property purchase
## Real Example: John's SMSF Success
John, age 52, $400,000 super balance, $180,000 salary:
**Property Purchase:**
- Brisbane unit: $600,000
- SMSF deposit: $240,000 (40%)
- SMSF loan: $360,000 @ 6.5% p.a.
- Annual rent: $30,000 (5% yield)
**Annual Position:**
- Rental income: $30,000
- Loan interest: $23,400
- Other costs: $8,000 (admin, property costs)
- Net position: -$1,400 (topped up from employer contributions)
**Tax Saving vs Personal Ownership:**
- Personal: Tax on $30,000 @ 45% = $13,500
- SMSF: Tax on $30,000 @ 15% = $4,500
- **Annual saving**: $9,000
**10-Year Projection:**
- Property value: $900,000 (assumes 4% p.a. growth)
- Loan paid down: $60,000
- Equity in SMSF: $600,000
- Tax saved over 10 years: $90,000
At age 62, John enters pension phase:
- All rent and future capital gains: **Tax-free**
- Can access property equity via pension payments
- Property forms significant part of retirement income
## Getting Started
1. **Consult SMSF Specialist**: Find accountant experienced with property
2. **Review Your Super**: Check balance and review current strategy
3. **Run the Numbers**: Calculate if it makes financial sense
4. **Arrange Finance**: Connect with SMSF specialist lender
5. **[Start Your Application](/connect)**: We'll connect you with SMSF lenders
## FAQs
**Can I use my SMSF to buy my first home?**
No. SMSF property must be investment only, cannot be lived in by members or relatives.
**What happens if I can't make loan repayments?**
The property must generate enough rent to cover repayments. If not, you need cash in the fund to cover shortfalls. If the fund defaults, lender can only claim the property (limited recourse).
**Can I buy property with another SMSF?**
Yes, two or more SMSFs can purchase property together, but complex legal structuring required.
**What if I want to sell?**
SMSF can sell anytime. Capital gains tax applies unless in pension phase (0% tax).
**Can I move into the property later?**
Only after the LRBA is repaid and in compliance with SMSF rules (typically via in-specie transfer when entering pension phase, with market-value transfer and tax implications).
Ready to explore SMSF property investment? [Connect with SMSF specialist lenders](/connect) or [download our SMSF property checklist](/resources).