If you’re thinking about buying property through your super, this one’s for you.
An SMSF can borrow to buy property, but it must be done the right way, under strict rules, and with the correct structure in place.
In this video, Candice Joseph from Entourage Finance explains how SMSF lending works, what’s possible, and what trustees need to understand before exploring this strategy.
This is Part 3 of our SMSF education mini-series, designed to help you make informed decisions and feel confident navigating the world of SMSFs.
The short answer: yes, with conditions
Yes, an SMSF can borrow to purchase property, but it must be done through a specific and compliant structure known as a Limited Recourse Borrowing Arrangement (LRBA).
Under an LRBA:
- The loan is secured only against the property being purchased
- The rest of the SMSF’s assets are protected
- If the loan were to default, the lender’s claim is limited to that single asset only
This “limited recourse” structure is what makes SMSF borrowing possible – and compliant – under superannuation law.
Residential vs commercial SMSF property lending
SMSF lending rules can differ depending on whether you’re purchasing residential or commercial property.
As a general guide:
- Residential property: lenders may lend up to around 80%
- Commercial property: lending is typically closer to 65%, however commercial property can often offer stronger rental yields
Why commercial property can be powerful for business owners
For business owners, commercial property inside super can be a particularly effective strategy. In many cases, an SMSF may be able to purchase your business premises and lease it back to your business at market rent.
When structured correctly, this can form part of a long-term, tax-effective wealth strategy – while also helping you take control of your premises over time.
Liquidity requirements matter
One of the biggest differences with SMSF lending is the lender’s focus on liquidity.
Most lenders want to see that after purchasing the property, the SMSF still holds around 5% of its total assets in cash or shares.
This helps ensure the fund can comfortably manage:
- Loan repayments
- Ongoing property expenses
- Unexpected costs (repairs, vacancies, insurance increases, etc.)
Liquidity is a critical part of assessing whether an SMSF loan is sustainable over the long term – and it’s often the key factor that determines whether a loan is approved.
SMSF lending: more complex, but very powerful
There’s no doubt SMSF lending is more complex than personal property finance. Between lending rules, liquidity requirements, and compliance obligations, it’s important to get the right advice before proceeding.
However, when done correctly, borrowing within an SMSF can be a powerful strategy for building long-term retirement wealth – and for some clients, it can be a valuable part of a broader wealth plan.
Next steps
SMSF lending isn’t a one-size-fits-all solution, but with the right structure and advice, it can play a valuable role in a broader wealth strategy.
Watch the full video above to understand how SMSF borrowing works, and keep an eye out for the next video in our SMSF education mini-series.
Want to see what you could borrow inside your SMSF?
If you’re considering purchasing property through your SMSF (or refinancing an existing SMSF loan), let’s run the numbers and check what’s possible.
Book a strategy call and we’ll review:
- borrowing capacity
- deposit requirements
- lender options and rates
- liquidity requirements
- the best structure for your fund