Can I buy property using a self-managed superannuation fund?

You can use self-managed superannuation funds to buy residential and commercial property with an SMSF loan.


Wouldn’t it be nice to retire in style, taking up new hobbies in your own home, dabbling in investment property or under a palm tree of your holiday home? You might be able to borrow money to buy property using a self-managed superannuation fund, or SMSF. Try our SMSF calculator below to see if you qualify.

With a SMSF loan you can:

  • Plan your retirement on your own terms
  • Choose an investment to suit your lifestyle and investment goals
  • Gear into property by borrowing within a Self Managed Super Fund

SMSF loan terms and features will vary between lenders - including interest rates, Loan to Value Ratios on residential or commercial securities and the loan term and amount.


Securing an SMSF Loan

The process of securing an SMSF loan will normally follow these seven steps:

  1. You'll establish or review your SMSF
  2. Work out the Property Trust Deed
  3. Give instructions to solicitors, conveyancers
  4. Get your loan approved
  5. Exchange contracts
  6. Your loan documents will be issued
  7. Settlement.


Managing your own super with a SMSF

Rather than investing superannuation funds in the hands of others, many Australians look for a retirement investment strategy with more control over their finances. Does this sound like you? You might want to consider setting up a self-managed super fund (SMSF) to invest your money in the direction you want. See also, SMSF loan.

What's a SMSF?
SMSFs are set up by a trustee or group of trustees (up to four members) who direct investment funds into it. They can hold different types of assets like cash, Australian and international equities, Australian and international fixed interest, alternative assets and property.
As a trustee, you manage your fund using guidelines from the Australian Taxation Office (ATO). There are a lot of regulations to stop people from misusing their funds.

Am I eligible?
You'll need a reasonable amount of money to start a viable and competitive fund. You'll also need to factor in costs for legal and financial advice, set up expenses, auditing and accounting services.
The ATO suggests having at least $200,000 to establish your fund. You'll also need the time to manage it yourself. Any Australian can start a SMSF but it's a good idea to brush up on your investment knowledge before you start. That way, you can approach the market with confidence.
If you're looking to buy property through your SMSF, there are a few key rules. SMSF loans for business purposes can be purchased from an external party if it's for investment purposes. Commercial property can be occupied by a related entity. You have to buy any residential property from an unrelated party or arm's length vendor. See also I’m retired. How can I access the equity in my property?

Who's doing it?
According to the Australian Tax Office (ATO), the largest demographic using SMSF's at the moment are the 55-64 age group, representing 32% of the population. Overall, of those people who have a SMSF, 47% are women and 53% are men.

Case study

Joan wanted a wealth building plan to help her set aside funds for a large nest egg for retirement. She had a SMSF with $200,000 and used the money to borrow extra funds to secure a residential investment property. Using a variable rate loan with a 7.80%p.a. interest rate, Joan borrowed $300,000 with an LVR of 80 per cent. The deposit is partly covered by some of Joan's SMSF funds, while the balance is borrowed money.
This allowed her to buy a property for $475,000, bringing the total cost, including stamp duty and other fees, to $500,000. Joan then rented the property out at $500 per week, giving her an annual rental stream of $26,000. Using money earned from the rent and other income, Joan was able to meet her home loan repayments and used SMSF money to cover repairs to the property.
Keeping an eye on market rates, Joan can increase the rent of her property while it grows in value over time. As a result, Joan can earn a steady stream of rental income and re-sell the property in the future potentially for a higher amount.