Quick Answer
You can buy residential or commercial property through your Self-Managed Super Fund using a limited recourse borrowing arrangement (LRBA). The property must be held in a bare trust, cannot be lived in by fund members, and must meet the sole purpose test. Typical LVR is 70% to 80% for residential and 65% to 70% for commercial, with rates 0.5% to 1.5% above standard home loans. Most lenders require the fund to have a minimum balance of $200,000 to $300,000.
SMSF property purchases involve complex legal and tax requirements. You should obtain independent financial advice and legal advice before proceeding. This guide provides general information only and is not financial advice.
How SMSF Loans Work
An SMSF property loan uses a limited recourse borrowing arrangement (LRBA) under section 67A of the Superannuation Industry (Supervision) Act 1993. The structure is more complex than a standard home loan.
The SMSF is the borrower. The loan is taken out in the name of the SMSF trustee (either individual trustees or a corporate trustee), not in your personal name. The fund's assets and income service the loan.
Property is held in a bare trust. The purchased property must be held in a separate bare trust (also called a holding trust or custodian trust) until the loan is fully repaid. The bare trustee holds legal title on behalf of the SMSF.
Limited recourse. If the SMSF defaults on the loan, the lender can only claim the property in the bare trust. They cannot access other assets of the fund. This is the "limited recourse" protection.
Rental income services the loan. The property must generate rental income, which is received by the SMSF and used to make loan repayments. Additional contributions from fund members can also be used to service the loan.
Title transfers on repayment. Once the loan is fully repaid, the property is transferred from the bare trust into the SMSF's name. Until that point, the bare trust holds legal title.
Eligibility
Not every SMSF can borrow to buy property. Lenders and the ATO have specific requirements that must be met.
Fund balance. Most lenders require the SMSF to have a minimum balance of $200,000 to $300,000, including the deposit and purchase costs. Some lenders set the minimum at $150,000 for smaller purchases, but this is uncommon.
Trustee structure. The SMSF must have a corporate trustee or individual trustees. Most lenders prefer a corporate trustee as it simplifies the legal structure and succession planning.
Trust deed. The SMSF trust deed must allow the fund to borrow. If your deed is older, it may need to be updated by a specialist SMSF lawyer. This typically costs $500 to $1,500.
Investment strategy. The fund's investment strategy must include property as a permitted investment class. The strategy must also demonstrate adequate diversification, meaning the property should not represent 100% of the fund's assets.
Member numbers. The SMSF can have up to 6 members (increased from 4 in 2021). All members must agree to the property purchase.
Compliance history. The fund must have a clean compliance history with the ATO. Any outstanding compliance issues or lodgement arrears will need to be resolved before a lender will approve the loan.
The Bare Trust Structure
The bare trust is a legal requirement for any SMSF property purchase using an LRBA. It is not optional.
What it is. A bare trust is a separate legal entity that holds the property on behalf of the SMSF while the loan is outstanding. The bare trustee (usually a separate company set up specifically for this purpose) holds legal title to the property.
Why it exists. The bare trust provides the limited recourse protection required by law. If the SMSF defaults, the lender's claim is restricted to the property in the bare trust and cannot extend to other fund assets.
Setup cost. Establishing a bare trust typically costs $2,000 to $5,000, including the formation of the bare trustee company and the preparation of the bare trust deed. This is a one-off cost paid at the time of purchase.
Ongoing requirements. The bare trust must be maintained as a separate entity while the loan is outstanding. This includes annual ASIC company registration fees for the bare trustee company (currently $310 per year) and any accounting costs associated with the bare trust's records.
Transfer on repayment. Once the LRBA loan is fully repaid, the property is transferred from the bare trust to the SMSF. This transfer attracts stamp duty in some states but is exempt in others. Check your state's rules or ask your solicitor.
LVR and Rates
SMSF property loans come with stricter LVR limits and higher rates than standard home loans.
| Property Type | Typical Max LVR | Rate Premium (above standard) | Typical Variable Rate Range |
|---|---|---|---|
| Residential | 70% to 80% | 0.5% to 1.5% | 6.50% to 7.50% |
| Commercial | 65% to 70% | 1.0% to 2.0% | 7.00% to 8.00% |
Rates are indicative as at March 2026 and vary by lender, LVR and property type.
Limited lender panel. Many major banks have exited the SMSF lending market in recent years, leaving a smaller panel of specialist and non-bank lenders. This reduced competition contributes to the rate premiums. A broker with access to SMSF lenders is essential to finding competitive options.
Loan terms. SMSF loans are typically available for up to 25 to 30 years, though many borrowers aim to repay within 10 to 15 years to maximise the retirement benefit.
Principal and interest only. Most SMSF lenders require principal and interest repayments. Some offer interest-only periods of up to 5 years, but this is less common than with standard investment loans.
What You Cannot Do
The rules around SMSF property are strict. Breaching these rules can result in significant ATO penalties and the fund losing its complying status (which triggers tax at the highest marginal rate on the entire fund balance).
Live in the property. No fund member or related party can live in a residential property owned by the SMSF. This is a fundamental breach of the sole purpose test.
Holiday in the property. Even occasional personal use of the property is prohibited. You cannot use an SMSF-owned property as a holiday home, even if you pay market rent.
Rent to related parties (residential). You cannot rent a residential SMSF property to a fund member, their relatives, or any related entity. Commercial property has an exception (your business can lease from the SMSF at market rent), but residential property does not.
Renovate substantially during the loan. While the LRBA is in place, you cannot make substantial improvements or alterations to the property. Routine repairs and maintenance are permitted, but structural renovations, extensions or additions are not allowed until the loan is fully repaid and the property has been transferred from the bare trust to the SMSF.
Use personal funds for property expenses. All property expenses (rates, insurance, repairs, loan repayments) must be paid from the SMSF's funds, not from the members' personal accounts. Personal contributions can be made to the fund through concessional or non-concessional contributions, but the fund then pays the expenses.
Buy from a related party (residential). The SMSF generally cannot purchase residential property from a fund member or related party. There is an exception for commercial property that is used in a related party's business, but it does not extend to residential assets.
Costs and Compliance
SMSF property purchases involve several layers of cost beyond the property itself and the loan interest.
| Cost | Typical Amount | Frequency |
|---|---|---|
| Bare trust setup (company + deed) | $2,000 to $5,000 | One-off |
| SMSF legal advice | $1,000 to $3,000 | One-off |
| Stamp duty on purchase | Varies by state | One-off |
| SMSF annual audit | $500 to $1,500 | Annual |
| SMSF accounting and tax return | $2,000 to $4,000 | Annual |
| ASIC company fee (bare trustee) | $310 | Annual |
| Property management fees | 5% to 8% of rent | Ongoing |
| Insurance (landlord, building) | $1,500 to $3,000 | Annual |
SMSF audit. Every SMSF must be audited annually by an approved SMSF auditor. If the fund holds property, the audit is typically more complex and therefore more expensive.
ATO reporting. The fund must lodge an annual SMSF return with the ATO, including details of the LRBA, property valuation and rental income. The LRBA must also be reported separately in the fund's financial statements.
Property valuation. The property must be valued at market value each year for the fund's accounts. Lenders may also require independent valuations at certain intervals during the loan.
Is It Worth It
SMSF property can be a powerful wealth-building strategy, but it is not suitable for everyone. Consider the following.
When it can make sense. SMSF property works best when the fund has a substantial balance ($300,000 or more), the members are at least 10 to 15 years from retirement, the property generates strong rental income, and the members are making regular contributions to support loan repayments and diversification.
When it may not make sense. If the fund balance is small, the property would represent too large a proportion of the fund's assets. Lack of diversification is a major compliance risk. If members are close to retirement, there may not be enough time to repay the loan and benefit from capital growth. The costs (setup, ongoing compliance, higher interest rates) can erode returns on lower-value properties.
Tax advantages. Rental income within the fund is taxed at 15% (or 0% in retirement pension phase). Capital gains on properties held for more than 12 months are taxed at 10% (or 0% in pension phase). These rates are significantly lower than personal marginal tax rates.
Commercial property and business premises. One of the strongest use cases is buying commercial premises for your own business through your SMSF. Your business pays rent to your fund (at market rates), and the fund builds an asset for your retirement. The rent is a tax-deductible business expense, while the rental income in the fund is taxed at just 15%.
SMSF property purchases sit at the intersection of superannuation law, property law and tax law. Before proceeding, obtain independent advice from a qualified financial adviser who holds an SMSF specialist credential and an SMSF-experienced solicitor. The cost of getting it wrong is far greater than the cost of getting proper advice.
Explore SMSF Lending Options
The SMSF lending market has a limited number of lenders, and rates vary significantly. Talk to a licensed finance broker who can compare across the available SMSF panel and find the most competitive option for your fund.
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