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SMSFs and property

Mixing property and your self-managed super

Page reading time: 4 minutes

Understand the rules, costs and risks of setting up an self-managed super fund (SMSF) to invest in residential property.


Self-managed super fund property rules

You can only buy property through your SMSF if you comply with the rules.

The property must:

If your SMSF purchases a commercial premises, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules. 

The Australian Taxation Office (ATO) has more information about buying property using your self-managed super fund.



What an SMSF property can cost you

SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.

Find out all the costs before signing up. Costs include:

Be wary of groups of advisers who recommend each other's services. The referral fees they receive can create conflicts of interest. This may influence the advice you receive to set up an SMSF as well as the investments and specific services recommended. 

It is important to get advice from a licensed financial adviser. Anyone who gives advice on an SMSF must have an Australian financial services (AFS) licence. ASIC Connect's Professional Registers will tell you if the company or person holds an AFS licence or is authorised to provide financial advice. 

See property investment for more information.



SMSF borrowing to purchase property

Borrowing or gearing your super into property involves very strict borrowing conditions. It's called a 'limited recourse borrowing arrangement' (LRBA).

You can only purchase a single asset with a LRBA. For example, a residential or commercial property. The ATO has more information about limited recourse borrowing arrangements.

You should assess whether investing in property is consistent with the investment strategy and risk profile of your SMSF.

Borrowing adds complexity to your SMSF, so it's important to get advice from a licensed financial adviser. Ask the financial adviser to explain the following risks.

SMSF property risks include:

See borrowing to invest for more information on the risks of gearing.



Property developers and SMSFs

Property developers must have an AFS licence if they provide financial advice. Financial advice includes advice on setting up an SMSF.

Property developers may have a pre-existing business relationship with the professionals they recommended. They may receive a referral fee or other benefits that could amount to thousands of dollars.

Don't be pressured into making property purchase decisions for an SMSF. Watch out for sales tactics like competitions, free flights to sales meetings or being taken out for free meals.

Think twice about investing in property markets you are not familiar with. Do your own research first.

Make sure you get financial advice from someone who has an AFS licence. See questions to ask a financial adviser for talking points you can use to check for sales incentives.

Man sitting on stool using a tablet.

Kyle considers an SMSF

Kyle considered setting up an SMSF to use his super to purchase another investment property. He has a property portfolio worth $1 million (with investment loans of $800,000), $200,000 in super and no other investments.

After discussing his options with a financial adviser, Kyle decides that an SMSF is not right for him. He realises that a property investment through an SMSF would further increase his debt and reduce the diversification of his assets. Kyle is also concerned about the cost, time and responsibility required to run an SMSF, especially as he gets older.

Instead Kyle decides to concentrate on paying off his debt and making extra contributions to his super.