Buying Property In A Self Managed Super Fund

Buying a property inside a self managed super fund (SMSF) is becoming more and more popular.

The fact remains that making a choice to invest in property through your SMSF is something you should consider carefully as well as obtaining quality independent advice as it deserves your closest consideration.

You must be confident that this strategy matches your overall retirement plan, it all depends on your personal investment approach and please keep in mind that you should always remove any unnecessary risk.

To be clear, we are not recommending that you set up a self managed super fund or that if you do that you should buy investment properties through the fund. At The Successful Investor we are recommend that if you have any interest in buying an investment property through your SMSF you should meet with a trusted professional who is fully licensed and able to provide you with this advice. If you want a recommendation to an advisor who can help you with this please contact our office.

An overview

Limited Recourse Borrowing Arrangements (LRBA) has increased the acceptance of property investments in self managed super funds. SMSFs can make use of borrowed money to buy a single property or a number of properties. The SMSF trustees obtain the beneficial interest in the property however the official ownership of the asset is held in trust.

The potential reward here is because with an LRBA, your entire super fund would not be in jeopardy in the event the loan is defaulted. There are also exclusions on the way the lender is able to recover any money owed.

But before you rush in blindly there are a number of things for you to consider:

If you use money in your SMSF for property investing what type of property should it be?

This is where we can help as we have a property sourcing service that will find you a property that is suitable for your circumstances. Contact our office on 1300 800 886 for more details.

What is an SMSF?

Questions to ask your financial advisor:

  • What are the specific short-term and long-term benefits of you setting up a SMSF?
  • What are the benefits of buying an investment property inside a SMSF?
  • What are all the initial set up costs and ongoing cost related to setting up a SMSF?
  • What are the key points you need to consider before you decide to set up a SMSF?
  • What work needs to be done by yourself in order to establish a fund?
  • Is it worthwhile establishing a SMSF just to buy an investment property?
  • What are the rewards?
  • What are the risks of having your own SMSF?
  • What are your requirements regarding compliance on an annual basis?
  • Ask about any potential benefits of buying a property in an SMSF, such as tax – your super fund is taxed at 15 % – and that is much under what many people’s personal tax rates.
  • Ask about reduced capital gains tax when you sell a property that was purchased in a SMSF?

There are several key points to consider if you intend to establish an SMSF especially if you intend to invest in property, either commercial or residential.

With a residential purchase inside a SMSF it is important that you realise you cannot live in it and neither can any of your immediate family members as there are conditions that the SMSF trustee, its members, and family members cannot benefit from the asset.

Buying any property inside super must support the comprehensive investing strategy of the SMSFs investment approach with regard to creating wealth for your retirement. If you are keen to buy an investment property inside your super fund but do not qualify for a loan then speak with your advisor about a possible strategy to overcome this.

For instance you might be able to utilise a Tenants in Common Arrangement. This arrangement would allow you to contribute cash from your SMSF and borrow the balance against the family home. For example if the investment property is $500,000 plus $30,000 for purchase costs you might be able to borrow $300,000 against the family home and use $230,000 from the super fund.

You may also be able to join forces with family members if there are not sufficient funds in your own account.

Business owners can use their SMSF to buy a commercial property then lease it back for business use.

There are several conditions that must be met if you are considering this, which include:

  • The arrangement must be on normal commercial terms and not favoured terms for the business. This is something the ATO looks at on a regular basis to make sure you comply.
  • You must make all payments on time even if the cash flow of the business is tight, as you cannot skip payments.
  • You must have valuations done on a regular basis; check with your advisor about all compliance issues if buying a commercial property is of interest.
  • The main reason for the purchase must be to benefit the members of the SMSF not to gain a commercial advantage for your business.

As you can see there is a lot to consider about firstly setting up a SMSF and secondly, should you buy an investment property in it? So it is vital for you speak with a qualified financial planner about all aspect of doing so and once you have all the required information you will be in a position to make an informed decision.

For more information contact our office on 1300 800 886.


The most common thing we hear from our clients is:

“I should have invested in properties 10 years ago”

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