Buying property through an SMSF: a step-by-step guide for Australian investors

August 22, 2025
Wellman Finance

How to buy property using your SMSF

Self-managed super funds (SMSFs) have become a popular vehicle for Australians looking to take control of their retirement savings. With the right structure and guidance, SMSF property investment can offer long-term growth, tax advantages and portfolio diversification.

This guide walks you through the essentials of buying property through an SMSF, from setup to compliance, borrowing rules and common pitfalls.

What is an SMSF and how does it work?

An SMSF is a private superannuation fund that you manage yourself. Unlike retail or industry super funds, SMSFs allow members to make investment decisions and tailor their portfolio to suit personal goals.

Trustee responsibilities

SMSFs can have up to four members and each member must act as a trustee (or director of a corporate trustee). Trustees are legally responsible for managing the fund in accordance with super laws and the fund’s trust deed.

Investment strategy requirements

Every SMSF must have a documented investment strategy that considers risk, diversification, liquidity and the retirement objectives of its members. Property can be part of this strategy but it must align with the fund’s sole purpose: providing retirement benefits.

What types of property can you buy?

Residential property

SMSFs can purchase residential property but strict rules apply. You cannot buy from or lease to a related party and members or their relatives cannot live in the property.

Commercial property

Commercial property offers more flexibility. SMSFs can lease commercial premises to a related business provided it’s done at market rates and under formal lease agreements.

Restrictions and compliance

All property investments must comply with the sole purpose test, meaning they must be made solely to provide retirement benefits. The property must be held in the fund’s name and meet strict documentation and valuation standards.

How SMSF borrowing works

Limited recourse borrowing arrangements (LRBAs)

SMSFs can borrow to purchase property using an LRBA. This structure ensures that if the loan defaults, the lender’s recourse is limited to the property itself, not the fund’s other assets.

Deposit requirements

SMSFs typically need a deposit of 20–30% of the property’s value plus additional funds to cover stamp duty, legal fees and setup costs. Lenders may also require a minimum fund balance.

Loan structure and risks

SMSF loans often come with higher interest rates and stricter lending criteria. Trustees must ensure the fund can service the loan without breaching contribution caps or liquidity requirements.

Tax benefits of SMSF property investment

Concessional tax rates

Income earned by the SMSF is taxed at a concessional rate of 15%. If the property is held until retirement and sold during the pension phase, capital gains may be tax-free.

Capital gains treatment

If the property is held for more than 12 months, capital gains are taxed at an effective rate of 10%. This can significantly improve long-term returns.

Rental income advantages

Rental income received by the SMSF is taxed at 15% and all expenses related to the property (e.g. maintenance, interest) are deductible within the fund.

Common mistakes to avoid

Breaching the sole purpose test

Using SMSF property for personal benefit, such as living in it or renting to family, violates super laws and can result in severe penalties.

Renting to related parties

Residential property cannot be leased to related parties under any circumstances. Commercial property can be leased to a related business but only with proper documentation and market-rate terms.

Poor documentation

SMSFs must maintain meticulous records including lease agreements, valuations and loan documents. Inadequate paperwork can lead to compliance issues and audit failures.

Frequently asked questions

Can I live in an SMSF property?

No. SMSF properties must be used solely for investment purposes. Members and their relatives cannot live in or rent residential properties owned by the fund.

What is an LRBA?

A limited recourse borrowing arrangement allows an SMSF to borrow money to purchase property. The lender’s claim is limited to the asset purchased, protecting the fund’s other assets.

How much do I need to start?

Most lenders require a minimum SMSF balance of $200,000–$250,000 to consider a property loan. You’ll also need funds for setup costs, legal fees and a deposit of at least 20–30%.

Take control of your financial future today. Book your consultation with Wellman Finance to discover how SMSF property investment can unlock long-term growth and exclusive tax advantages.