How to Buy an Investment Property Through Your SMSF

A Self-Managed Super Fund loan lets you use your retirement savings to purchase an investment property while the asset is still held in trust.

The property sits in a bare trust arrangement until the loan is repaid, at which point it transfers to your SMSF. Rental income from the property goes directly into the fund, taxed at a concessional rate of 15%, and capital gains receive a discount of one-third when held for more than 12 months within the fund. This structure, known as a Limited Recourse Borrowing Arrangement, means the lender's recourse is limited to the property itself if the loan defaults, protecting other assets in your SMSF.

LVR and Deposit Requirements for SMSF Property Loans

Most specialist lenders now offer loan-to-value ratios up to 80% for both residential and commercial property held through an SMSF.

That means a 20% deposit, sourced from the existing balance of your fund. In our experience, this shift from the historically conservative 60-70% LVR range has opened up opportunities for funds with moderate balances to enter the property market. The deposit must already exist within the SMSF, you cannot make a personal contribution to meet the shortfall just before settlement. Planning your contribution strategy in the years leading up to a purchase becomes critical, particularly if you're aiming to build sufficient funds while managing contribution caps.

Residential or Commercial Property: What Works for Your Fund

The choice between residential and commercial depends on your fund's risk profile and the income requirements of its members.

Consider a fund with a balance of $450,000 looking at a residential property in Melbourne's northern suburbs. At 80% LVR, that fund could borrow up to $360,000, targeting properties around the $450,000 mark after accounting for the deposit and holding back cash for settlement costs and a contingency buffer. Residential tenancies offer consistent demand and turnover, but rental yields in many Melbourne suburbs sit in the 3-4% range. A commercial property leased to an established business might deliver a yield closer to 5-6%, but vacancy periods tend to be longer and tenant fitout obligations can add complexity. Both property types now attract similar LVR limits, so the decision comes down to yield, liquidity, and how actively you want to manage the asset. If you're considering your first move into property investment outside super, the principles around structuring and cash flow overlap significantly with buying your first investment property.

The Sole Purpose Test and Related Party Rules

Every asset in your SMSF must exist solely to provide retirement benefits to fund members.

That means you cannot live in the property, holiday in it, or lease it to a family member at below-market rent. You also cannot lease a commercial property to your own business unless strict exemptions apply, and even then the asset cannot represent more than 5% of the fund's total value. The sole purpose test is not a suggestion. Breaches can result in penalties, loss of tax concessions, or disqualification of the fund. The property must be rented at market rates to an unrelated tenant, and all income must flow back into the SMSF. Repairs and maintenance are permitted, but structural improvements that alter the character of the property, such as adding a second dwelling or converting a warehouse, are not allowed while the loan remains active.

Interest Rates and Loan Structure for SMSF Borrowing

SMSF property loans typically carry higher interest rates than standard home loans due to the added complexity and regulatory requirements.

Rates vary depending on whether you choose a variable or fixed structure, the LVR, and the lender's appetite for SMSF lending at the time. At current variable rates, you might see pricing 0.5% to 1.5% above a standard investment loan, though this gap narrows with larger deposits and strong fund financials. Fixed-rate options exist but are less common and tend to lock in higher margins. The loan is structured as interest-only in most cases, allowing rental income to service the debt without drawing down the fund's cash reserves too quickly. Each loan covers a single property held in a separate bare trust, so if your fund wants to acquire two properties, you'll need two separate Limited Recourse Borrowing Arrangements, each with its own trust deed and loan agreement.

Trustee Training and Compliance Obligations

New rules require all SMSF trustees, both new and existing, to complete certified training covering borrowing arrangements, related-party transactions, and cash flow planning.

Failure to meet this requirement can result in penalties of up to $19,800 or, in serious cases, disqualification of the fund. The training is designed to ensure trustees understand the obligations and risks that come with leveraging super, particularly around record-keeping and transaction monitoring. SMSFs with borrowing arrangements face heightened scrutiny from the ATO, and you'll need to maintain detailed records of rental income, loan repayments, and any expenses related to the property. For related-party loans, which occur when the SMSF borrows from a member or related entity, the interest rate must be set at arm's length. For the 2025-26 financial year, the safe harbour rate for property LRBAs is 8.95%, down from 9.35% the previous year. Charging below this rate risks the arrangement being viewed as non-commercial, triggering penalties and potential fund disqualification.

How an SMSF Mortgage Broker Compares Lenders

Not all lenders offer SMSF loans, and those that do often have different appetites for residential versus commercial property, fund size, and loan structure.

An SMSF mortgage broker will compare specialist lenders and non-bank providers who understand the regulatory environment and can structure the loan to meet both ATO requirements and your fund's cash flow needs. They'll also coordinate with your accountant and legal adviser to ensure the bare trust is established correctly and the loan documents align with your fund's trust deed. The application process is more involved than a standard loan. Lenders will assess the fund's financial position, the property's income potential, and your capacity to service the debt from rental income and existing contributions. In some cases, they'll also want to see a clear strategy for how the loan will be repaid or refinanced as members approach retirement and the fund transitions from accumulation to pension phase. If you're also considering refinancing an existing loan to release equity for the SMSF deposit, the timing and structure of that refinancing to release equity will need to be carefully planned to avoid cash flow issues.

LRBA Growth and the Melbourne Property Market

Limited Recourse Borrowing Arrangements now account for around $75 billion in SMSF assets, reflecting growing confidence in the structure and a broader shift toward property as a core retirement asset.

Melbourne remains a focal point for SMSF property investment, particularly in established suburbs with strong rental demand and proximity to employment hubs. The northern and eastern suburbs continue to attract interest from funds targeting residential property, while pockets of the inner west and bayside areas offer opportunities in small-scale commercial holdings. The key is ensuring the property can generate sufficient rental income to service the loan without requiring ongoing cash injections from the fund, which can erode the long-term benefit of holding the asset in a concessionally taxed environment.

Using your super to acquire investment property requires careful planning, strict adherence to compliance obligations, and a clear understanding of how the loan and property fit within your broader retirement strategy. Call one of our team or book an appointment at a time that works for you to discuss how a Limited Recourse Borrowing Arrangement might support your fund's objectives.

Frequently Asked Questions