Buying an investment property inside a Self-Managed Super Fund (SMSF) can be a powerful long-term wealth strategy — but it is also one of the most regulated areas of Australian finance. Lending rules, trust structures, tenancy restrictions and compliance obligations are strict, and getting any part wrong can be costly.

For many Australians considering an SMSF, the appeal is not just the ability to purchase property. It’s also about having greater control and transparency over where their retirement savings are invested. Recent public discussions about governments encouraging large superannuation funds to invest more heavily in state infrastructure and major public projects have left some people uncertain about how their super is being allocated within industry funds. Several economists and financial analysts have noted that large, debt-heavy infrastructure projects can carry long-term risks, and that super fund trustees must always act in the best financial interests of members — not government priorities.  

SOURCE: NEWS.COM.AU  https://www.news.com.au/finance/superannuation/slush-fund-jacinta-allan-slammed-for-super-proposal/news-story/1ca3f36c2d95cb66817b0bc03b36a0b3?

SOURCE: https://www.investmentmagazine.com.au/2025/11/mandating-super-for-nation-building-risks-flight-to-smsfs-pearce/?

While this doesn’t mean industry funds are unsafe, it does highlight why some people prefer an SMSF structure. With an SMSF, you choose the investments, determine your risk profile, and are not reliant on how a large fund manager allocates billions across differing sectors. For those wanting direct investment options — including property — an SMSF can offer flexibility and visibility that traditional super funds cannot match.

This guide walks through the key steps to consider when purchasing residential or commercial property inside an SMSF so you can understand the process and avoid the common pitfalls.

Important: This is general information only. Always seek advice from a licensed financial adviser & accountant before acting.

Why Some Australians Choose an SMSF

People exploring SMSFs often cite the following motivations:

• Control over investments — choosing exactly where retirement savings are invested.
• Greater transparency — full visibility of assets, costs and investment decisions.
• Access to direct property investment — something industry funds don’t offer at an individual level.
• Diversification on their terms — adjusting the asset mix beyond what industry funds provide.
• Concerns about large public projects — caution around discussions of super being directed toward major state infrastructure, and the potential long-term risks involved.
• Long-term wealth strategies — utilising tax-effective structures, pension planning and intergenerational wealth strategies.

1. Check Whether an SMSF Property Strategy Is Actually Suitable for You

Before setting up an SMSF or paying for structures, the first step is confirming whether purchasing a property in super is realistically achievable for your situation. You don’t want to go through the cost and effort of establishing an SMSF and bare trust only to discover later that you can’t purchase a property due to lending criteria, contribution levels, or SMSF rules.

A quick early assessment can save significant time and unnecessary expense.

Key things to assess upfront:

• Your current super balance — does your existing industry or retail super fund have enough to support a property purchase when combined with future contributions?
• Your age and stage of life — nearing retirement often means a greater focus on liquidity, diversification and exit planning.
• Your contributions history and capacity — lenders assess whether ongoing contributions plus rental income will comfortably support loan repayments.
• Borrowing requirements — if the property will require an SMSF loan (LRBA), both superannuation regulations and lender rules must be met.
• Your position as guarantor — most SMSF loans require personal guarantees, so your personal financial position matters.

Why speak to a broker early?

If you haven’t set up an SMSF yet, an SMSF-experienced broker can run an initial lending assessment using:

• Your current industry super fund balance
• Expected contributions
• Estimated rental income
• Your personal financial position (for guarantee purposes)

This assessment helps determine:

• Whether an SMSF property purchase is viable
• Your realistic purchase price range
• Whether borrowing is likely to be approved
• Whether establishing an SMSF is worthwhile

Many clients avoid unnecessary setup costs simply by checking lending capacity upfront.

2. Understand the Core SMSF Property Rules

SMSF property rules are strict, and understanding them early prevents costly mistakes.

Residential property rules:

• You cannot live in it.
• Your family or related parties cannot live in it or rent it.
• The SMSF generally cannot buy residential property from a related party (unless it qualifies as business real property — rare for standard houses/units).

Commercial (business real property) rules:

• Your SMSF can buy business real property.
• Your own business can lease the premises from your SMSF at full market rent.
• The lease must be properly documented and paid on time — no shortcuts.

Rules that always apply:

• The investment must meet the sole purpose test — it must benefit retirement only, not you personally today.
• All transactions must be at arm’s length — market rent, proper leases, commercial terms.
• If any part of your plan involves “we might live in it later,” “my kids can stay there,” or “we’ll rent it to family for a bit,” you must stop and seek specialist advice immediately.

3. Decide Between Residential and Commercial Property

Choosing the right type of property will depend on your SMSF’s investment strategy and goals.

Residential SMSF property is usually about:

• Long-term capital growth
• Rent from unrelated tenants
• Lower yields but often more stable demand

Commercial SMSF property is usually about:

• Business owners wanting their SMSF to own their premises
• Higher yields but higher vacancy or lease-up risks
• Ability to pay market rent from your business into your SMSF
• Different property types often mean different LVRs, cash-flow requirements, and lender policies.

4. Understand How Borrowing Works in an SMSF (LRBA)

• Most SMSF property purchases use a Limited Recourse Borrowing Arrangement (LRBA).
• Key features:
• The SMSF borrows to buy a single asset (e.g., one property/title).
• The property is held in a separate holding/bare trust.
• If the loan defaults, the lender’s rights are limited to that property only.
• Other important points:
• Borrowed funds cannot generally be used to improve a property in a way that creates a “new asset”.
• The SMSF can usually fund repairs and maintenance only.
• You cannot transfer an existing SMSF-owned property into an LRBA.
• This structure is more complex and expensive than a standard investment loan, so you want to ensure the numbers stack up.

5. Do a Full Lending & Cash-Flow Assessment

• Before offering on a property, your broker and accountant should assess:
• SMSF balance and contribution flows
• Rental income expectations
• Liquidity requirements
• Lender rules for minimum balances, buffers, and LVRs
• Whether personal guarantees are acceptable
• For commercial property, lenders will also assess the tenant, the lease, and the business’s financials.
• A proper pre-approval (not just a soft check) is strongly recommended so you know your SMSF can complete the purchase before you sign a contract.

6. Set Up the Bare Trust Trustee (company or individual)  Before You Sign a Contract

The holding/bare trustee structure should be established before the Contract of Sale is signed.

You need:

• The SMSF established
• You must have your SMSF and custodian (bare trustee) entity established before signing the contract.
• The bare trust deed itself is normally created after the contract is signed, once property details are available — but must be completed before settlement.
• The contract must be signed correctly — usually by the holding trustee on behalf of the bare trust.
  Signing in the wrong name can create stamp duty issues or even cause the lender to decline the loan.
• If the contract has already been signed incorrectly, you must seek advice and make sure it is amended accordingly.

7. Choose the Right Property

When selecting a property:

Ensure it aligns with the SMSF’s investment strategy

For residential property:

• Strong rental demand
• Suitable tenant mix (unrelated only)

For commercial property:

• Lease terms, market rent, tenant quality
• Location risks and potential vacancies

The property needs to work as a retirement investment, not as a lifestyle asset.

• After settlement:
• Rent flows into the SMSF
• Future Super Contributions also flow into the SMSF
• The SMSF pays loan repayments and expenses
• Over time, the SMSF builds equity and retirement savings through loan reduction and potential capital growth

Final Thoughts

Buying a property inside an SMSF can be a smart strategy — but only when the structure, lending, compliance and long-term planning are done correctly.

If you’d like help checking borrowing capacity the team at WhiteStar Finance & Conveyancing can guide you on the process and finance criteria & eligibility, however we cannot offer legal and financial advice as to whether a SMSF or Purchasing in your SMSF is suitable for your individual circumstances.

IMPORTANT – SEEK ADVICE

Talk to WhiteStar Finance & Conveyancing as well as seek independent legal and financial advice to get clarity before you spend money setting up an SMSF or signing a contract.