Why SMSF Loans Let You Buy Property with Super

You can use your super to buy an investment property, but only through a Self-Managed Super Fund with a Limited Recourse Borrowing Arrangement.

The structure isolates the property in a bare trust, limits the lender's recourse to that single asset, and requires the purchase to satisfy the sole purpose test. Not every lender offers SMSF property loans, and those that do apply stricter deposit requirements and different serviceability criteria than standard investment lending.

Limited Recourse Borrowing Arrangement: How the Structure Works

A Limited Recourse Borrowing Arrangement quarantines the property your SMSF purchases into a separate legal entity called a bare trust.

The SMSF holds the beneficial interest, makes repayments from fund income or member contributions, and receives rental income. The property title transfers to the SMSF only once the loan is repaid in full. If the SMSF defaults, the lender can claim only the asset held in the bare trust, not the other investments within your super fund. This protection is why lenders charge higher interest rates and require larger deposits than they would for a standard investment loan.

Consider a scenario where an SMSF with two members holds $400,000 in cash and listed shares. The trustees want to purchase a residential property for $500,000. The SMSF contributes $150,000 as a deposit and borrows $350,000 through a Limited Recourse Borrowing Arrangement. The property is titled in the name of a bare trust, with the SMSF as beneficiary. The loan repayments come from rental income and additional concessional contributions. The SMSF cannot access the property for personal use, and if the loan defaults, the lender's claim is limited to the property in the bare trust, leaving the $400,000 in other assets untouched.

SMSF Loan Deposit Requirements and LVR Limits

Most lenders offering SMSF residential loans cap the loan-to-value ratio at 80%, meaning your fund needs a 20% deposit plus settlement costs.

Some lenders will consider 70% LVR for commercial property, but anything above 80% for residential is rare and typically reserved for funds with substantial asset backing or guarantor arrangements. The deposit must come from existing super balances or new concessional or non-concessional contributions made before settlement. You cannot borrow to fund the deposit, and the SMSF cannot accept loans from members or related parties outside the formal Limited Recourse Borrowing Arrangement.

SMSF Loan Interest Rates: Variable and Fixed Options

SMSF loan interest rates sit above standard investment loan rates, reflecting the limited recourse nature of the arrangement.

Variable rates are more common and allow the SMSF to make additional repayments or pay down the loan faster as rental income or contributions increase. Fixed rate options exist but are less flexible and may carry break costs if the SMSF wants to refinance or pay out the loan early. When comparing SMSF lenders, the interest rate difference between variable and fixed options is often smaller than it is for owner-occupier or standard investment loans, because the limited recourse structure adds similar risk regardless of rate type.

Rental Income, Tax Treatment, and the Sole Purpose Test

Rental income received by the SMSF is taxed at 15% during the accumulation phase, which is lower than most marginal tax rates.

If the property is held until a member enters the pension phase, the rental income becomes tax-free, and any capital gain on sale receives a full exemption rather than the one-third discount that applies during accumulation. The property must satisfy the sole purpose test, meaning it exists only to provide retirement benefits to fund members. You cannot live in the property, holiday in it, rent it to a related party at below-market rates, or use it for any purpose that delivers a present-day benefit to members or their relatives. Breaching the sole purpose test can result in the fund losing its complying status and facing significant tax penalties.

SMSF Commercial Loans and Mixed-Use Property

SMSF commercial loans allow your fund to purchase business premises, retail spaces, warehouses, or mixed-use properties.

The same Limited Recourse Borrowing Arrangement applies, but lenders typically require a larger deposit and may cap LVR at 70% or lower. One advantage of holding commercial property in an SMSF is that the fund can lease the property to a related party business, provided the lease is at market rent and documented under a formal agreement. This structure is common among business owners who want to separate their operating entity from the property it occupies and build super fund value through rental income and capital growth. The same sole purpose and limited recourse principles apply, and the property cannot be used for personal purposes.

SMSF Borrowing Capacity and Serviceability Assessment

Lenders assess SMSF borrowing capacity by reviewing the fund's existing assets, rental income from the proposed property, and the capacity for members to make ongoing contributions.

Unlike personal income, which is assessed using payslips and tax returns, SMSF serviceability relies on the fund's financial statements, rental appraisals, and a history of regular contributions. If the fund has no rental income yet and relies entirely on future contributions to service the loan, the lender will want evidence that members can and will make those contributions without breaching contribution caps. This makes SMSF loan applications more documentation-heavy than standard investment loan refinancing or new purchase applications.

When an SMSF Mortgage Broker Adds Value

Not all mortgage brokers work with SMSF lenders, and not all lenders accept SMSF property loan applications.

An SMSF mortgage broker knows which lenders accept Limited Recourse Borrowing Arrangements, how to structure the application to meet both lending and compliance requirements, and how to coordinate with the SMSF's accountant and legal adviser. The broker can also compare SMSF lenders on interest rates, LVR limits, and flexibility around additional repayments or future refinancing. Because the market for SMSF lending is smaller and more specialised than residential or commercial lending, the difference between a broker who understands the structure and one who does not is significant.

Call one of our team or book an appointment at a time that works for you. We work with SMSF trustees across Australia and can connect you with lenders who understand the structure, assess your fund's borrowing capacity, and coordinate with your advisers to make sure the arrangement complies with superannuation law and meets your retirement strategy.

Frequently Asked Questions