In short: An SMSF can borrow to buy property only through a limited recourse borrowing arrangement (LRBA) where a separate bare trust holds the title, the loan covers a single acquirable asset, and the purchase satisfies the sole purpose test of providing retirement benefits. Residential property cannot be bought from or lived in by members or relatives. Lenders typically cap SMSF loans at around 70% to 80% LVR for residential and lower for commercial, and charge higher rates than standard home loans.
Key takeaways
- Borrowing must be through an LRBA with a bare trust (custodian trust) holding legal title until the loan is repaid.
- The loan can only fund a single acquirable asset: one title, or several titles only where they cannot legally be dealt with separately.
- The sole purpose test bans any present-day benefit to members or relatives, so no holidays in the beach house and no renting to your daughter.
- Lender LVRs are lower, rates are higher, and most lenders want the fund to retain a liquidity buffer after settlement.
- The loan can fund repairs that keep the asset as it is, but not improvements that change its character, such as a second storey or a subdivision.
Trustees in Melbourne's north ask us about SMSF property every week, often after a friend at the temple or the cricket club has done it. It can be a sound strategy, particularly for business owners buying their own premises. It is also the most rule-bound purchase in Australian property, and the ATO does not forgive honest mistakes cheaply. Here is the rulebook in plain English.
The structure: LRBA and the bare trust
Superannuation law prohibits an SMSF from borrowing except under a narrow exception. Under an LRBA:
- The SMSF trustee decides to buy the property and applies for the loan.
- A separate bare trust is established with its own trustee (usually a company) that holds legal title.
- The SMSF is the beneficial owner and receives all rent and pays all expenses.
- The lender's recourse is limited to the property itself. If the fund defaults, the lender cannot touch the fund's other assets.
- When the loan is repaid, legal title can transfer to the SMSF.
Because recourse is limited, lenders price the risk: expect rates above standard investment loans and, in most cases, a personal guarantee from the members. Our SMSF loans page explains what we arrange and our SMSF property investment guide covers the strategy side. The ATO's SMSF section is the primary source on the law.
Single acquirable asset
The LRBA can only be used to acquire one asset. In practice:
- One house on one title is fine.
- A house and land package is generally not, because the land is bought first and the house built later. Most funds buy completed property or use a two-contract structure with specialist advice.
- Two units on separate titles need two LRBAs, even if they are next to each other.
- A property with a separate car park title may be a problem unless the titles cannot be dealt with separately.
The sole purpose test
Every SMSF must be maintained solely to provide retirement benefits to members or their dependants. For property this means:
| Allowed | Not allowed |
|---|---|
| Renting a residential property to an unrelated tenant at market rent | Living in the property, or letting a relative live in it, even at market rent |
| Leasing a commercial property to a member's business at market rent under a written lease | Charging the member's business below-market rent |
| Buying a commercial property (business real property) from a member at market value | Buying residential property from a member or relative |
| Repairs and maintenance funded from the fund or the loan | Using the property for a holiday, storage or any personal purpose |
The commercial exception is why so many tradies, GPs and restaurant owners buy their premises through super. The fund becomes the landlord, the business pays rent into super, and the arrangement is legitimate as long as everything is at arm's length and documented.
What lenders look for
SMSF lending is a specialist market. Fewer lenders play in it and each has firm policies.
| Lender criterion | Typical position (lender-dependent) |
|---|---|
| Maximum LVR, residential | Around 70% to 80% |
| Maximum LVR, commercial | Lower again, often around 65% to 70% |
| Minimum fund balance or contribution history | Many lenders want an established fund with regular contributions |
| Liquidity after settlement | A cash buffer left in the fund, commonly a percentage of the property value |
| Serviceability | Rent plus member contributions, tested with a buffer |
| Guarantees | Personal guarantees from members are common |
| Loan term | Often shorter than 30 years |
Check the impact of a lower LVR with the LVR calculator and test the cash flow with the investment property cashflow calculator.
Worked example: a warehouse in Thomastown
A couple who run a joinery business have $420,000 in their SMSF. They find a small factory unit in Thomastown for $900,000 and lease it to their own company at market rent.
| Item | Figure |
|---|---|
| Purchase price | $900,000 |
| Maximum loan at 65% LVR | $585,000 |
| Fund contribution (deposit) | $315,000 |
| Stamp duty (general rate) | $49,070 |
| Legal, bare trust setup, valuation and lender fees | Budget several thousand dollars |
| Liquidity remaining in fund | Roughly $50,000 after all costs |
If the lender wants a larger post-settlement buffer, the fund needs more cash or a cheaper property. This is the point where many trustees discover the deposit is really 35% plus costs plus buffer, not 20%. Commercial property carries the general duty rate in Victoria with no owner-occupier concession; the SRO publishes the schedule and our commercial property loans page covers the finance.
Ongoing costs the fund must carry
- Loan repayments, from rent and contributions.
- Land tax. The principal-residence exemption never applies to SMSF property, and the fund is assessed on the land value under the 2024–2033 Victorian scale. A site value of $500,000 attracts $1,950 a year before any surcharge. See our land tax Victoria page.
- Insurance, council rates, water, and for units an owners corporation levy.
- Annual audit, accounting and the bare trust company's fees.
The trustee checklist before signing anything
- Confirm the trust deed permits borrowing and property investment.
- Update the investment strategy to justify the purchase and its concentration risk.
- Establish the bare trust and its corporate trustee before exchange. Signing the contract in the wrong name is a common, expensive error.
- Get a written loan pre-approval and know the LVR.
- Obtain an independent valuation and market rent appraisal.
- Have the lease drafted at arm's length if a member's business will be the tenant.
- Confirm the single acquirable asset position with your adviser.
Frequently asked questions
Can my SMSF buy a house and then my son can rent it?
No. Renting residential property to a member or a relative breaches the in-house asset and sole purpose rules, even at full market rent. Only business real property leased to a related business is permitted. A breach can lead to penalties and, in serious cases, the fund losing its concessional tax status.
Can I move into the SMSF property when I retire?
Not while the fund owns it. On retirement the fund can sell the property to you at market value, or transfer it in specie as a lump sum benefit if the rules permit, and stamp duty may apply. Until then, the property remains an investment asset and you cannot use it personally.
Are SMSF loan rates much higher than normal investment loans?
They are typically higher, reflecting the limited recourse and the smaller lender pool, and fees are also higher. Whether the strategy still stacks up depends on the rental yield, the tax treatment inside super and the fund's other assets. A broker who works in this space can compare the handful of lenders and structures available.
Talk to GNT Finance
Gorakh Timilsina arranges SMSF loans for business owners and investors across Melbourne's north and works alongside your accountant and SMSF administrator so the structure is right before you sign. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.