5 Key Steps to Buying Property Using SMSF

Buying property with a Self Managed Superannuation Fund (SMSF) is a popular strategy among Australians who want more control over their retirement savings and investment decisions.

This guide will explain the 5 key steps and considerations for purchasing a property with your SMSF, whether it’s a residential or investment property. Understanding the rules, benefits, and potential pitfalls can help you make an informed decision and maximise your investment potential.

1. Know the Self Managed Super Fund (SMSF) Rules

Purchasing a property through a private superannuation fund or an SMSF involves specific rules and procedures that differ from traditional property purchases. The essential advantage of using an SMSF is leveraging your superannuation savings to invest in property, potentially providing a more substantial nest egg for retirement. However, it’s crucial to ensure compliance with superannuation laws and regulations.

Setting Up Your SMSF

Before you can buy a property with your SMSF, you need to set up the fund. This involves:

  • Establishing a Trust: Your SMSF must be established as a trust, which requires creating a trust deed and appointing trustees. The trust deed outlines the rules for operating the fund and managing its assets.

  • Registering with the ATO: Your SMSF must be registered with the Australian Taxation Office (ATO) and obtain an Australian Business Number (ABN) and Tax File Number (TFN).

  • Opening a Bank Account: You’ll need to open a separate bank account for your SMSF to handle all transactions and investments.

  • Rolling Over Existing Super: You can transfer your existing superannuation savings into your SMSF. This forms the initial capital for your property investment.

Compliance and Legal Requirements

SMSFs are subject to strict regulatory requirements. Key compliance aspects include:

  • Sole Purpose Test: Your SMSF must operate solely to provide retirement benefits to its members. Any property investment must align with this objective. Learn more about the Sole Purpose Test here.

  • Investment Strategy: Your SMSF must have a documented investment strategy considering risk, return, liquidity, and diversification. Property investment should be part of this strategy. Developing an effective SMSF investment strategy can be crucial for success.

  • Borrowing Restrictions: SMSFs can borrow money to purchase property under specific conditions known as a Limited Recourse Borrowing Arrangement (LRBA). The property must be held in a separate trust, and the lender’s recourse is limited to the property itself.

Property experts emphasise that using an SMSF to buy property can offer significant control and potential tax benefits. However, they caution that the complexity of SMSF regulations requires careful compliance and professional advice. The opportunity to leverage superannuation savings for property investment is seen as a powerful tool.

Still, it necessitates a thorough understanding of rules such as the sole purpose test and borrowing restrictions under Limited Recourse Borrowing Arrangements (LRBA). Overall, experts suggest that while SMSF property investments can be lucrative, they demand diligent management and strategic planning.

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2. Residential Property

Investing in residential property through an SMSF can be an attractive option for many, but it’s essential to understand the rules and implications.

Eligible Properties

SMSFs are not allowed to acquire residential property from a member’s related party. The property must be purchased from an unrelated third party. Additionally, any property purchased must meet the sole purpose test, ensuring it is for retirement benefits and not for the personal use of fund members.

Leasing to Members or Relatives

You cannot live in the property yourself or lease it to a relative. The property must be rented at market value and rates to unrelated parties. This rule ensures that the investment is genuinely for retirement purposes and not for current personal benefit.

Benefits and Drawbacks

  • Benefits: Residential property investment can provide stable rental income and potential capital growth. Property is a tangible asset some investors prefer over other asset classes. Explore the benefits of investing in residential property.

  • Drawbacks: Residential properties can be more challenging to manage and maintain. Additionally, restricting personal use and leasing to relatives can limit flexibility.

Experts highlight the stability and tangible nature of residential property investments through SMSFs. The potential for steady rental income and long-term capital growth makes residential properties appealing. However, experts warn about strict regulations, such as the prohibition on leasing to related parties and personal use, as well as existing residential investment property, which can limit flexibility. They advise thorough market research and due diligence to ensure the property aligns with the SMSF’s investment strategy and complies with all regulatory requirements.


3. Commercial Investment Property

For many SMSF trustees, investing in commercial or other investment properties can be more appealing due to fewer restrictions and potential tax advantages.

Types of Investment Properties

Investment properties can include commercial real estate, industrial properties, and even agricultural land. They often have longer lease terms and can provide higher rental yields than residential properties. Discover different types of investment properties.

Leasing to Your Business

One advantage of commercial property investment is leasing the property to your business, provided it is done at market rates. This can be a strategic way to manage business expenses while growing your retirement savings.

Considerations and Risks

  • Market Volatility: Commercial property values and rental yields can be more volatile than residential properties.

  • Management and Maintenance: Commercial properties may require different management skills and more significant maintenance efforts.

  • Vacancy Rates: Longer vacancy periods can occur in commercial properties, affecting cash flow and returns.

Experts in the field often favour commercial properties within SMSFs due to fewer restrictions and potentially higher yields than residential properties. Leasing commercial properties to one’s own business is a significant advantage. However, experts caution that commercial real estate can be more volatile and complex, requiring a deep understanding of market dynamics and property management skills. They stress the importance of diversification to mitigate risks associated with commercial property investments.


4. Property Investment Due Diligence

Investing in property through an SMSF requires careful planning and consideration of various factors to ensure it aligns with your retirement goals.

Research and Due Diligence

Thorough research is essential before purchasing any property. Consider location, property condition, market trends, and future growth potential. Due diligence can help identify potential issues and ensure the property is a sound investment.

Financing the Property

If you plan to borrow money to purchase the property, you must set up an LRBA. This involves creating a separate trust to hold the property and securing a loan. It’s important to understand the terms and conditions of the loan, including interest rates, repayment schedules, and lender requirements.

Property Management

Effective property management is crucial for maintaining the value of your investment and ensuring consistent rental income. This can include selecting reliable tenants, conducting regular property inspections, and addressing maintenance issues promptly.


While property can be a valuable addition to your SMSF portfolio, it’s essential to maintain diversification. Over-reliance on property can expose your fund to market risks and affect liquidity. Ensure your investment strategy includes a mix of asset classes to balance risk and return. Understand the importance of diversification in your SMSF.

Experts emphasise the importance of comprehensive research and due diligence when investing in property through an SMSF. This includes analysing market trends, property conditions, and future growth potential. They recommend having a solid financing plan, especially when setting up an LRBA for borrowing. Effective property management and maintaining diversification within the SMSF investment portfolio are critical to balancing risk and return. Experts also highlight the need to review the SMSF’s investment strategy to adapt to changing market conditions and regulatory landscapes.


5. Capital Gains Tax

Capital Gains Tax (CGT) is a significant consideration when buying and selling property within an SMSF. Understanding how CGT applies can help you manage your tax liabilities and maximise investment returns.

CGT in an SMSF

When a fund member of your SMSF sells a property, any capital gain is subject to CGT. The tax rate depends on the fund’s age and stage:

  • Accumulation Phase: During the accumulation phase, CGT is generally taxed at a concessional rate of 15%. If the property is held for over 12 months, the fund may be eligible for a one-third discount, reducing the effective tax rate to 10%.

  • Pension Phase: Once the fund transitions to the pension phase, any capital gains on assets supporting retirement income streams are generally exempt from CGT. This can provide significant tax savings for retirees.

Strategies to Minimise CGT

  • Holding Period: Holding property for over 12 months can reduce CGT liability through the concessional tax rate and the one-third discount.

  • Timing of Sale: Selling property when the SMSF is in the pension phase can eliminate CGT on the gains, maximising the tax benefits.

  • Offsetting Gains with Losses: If the SMSF has other assets with capital losses, these can be used to offset gains and reduce the overall tax liability.

Property experts underscore the significance of understanding Capital Gains Tax (CGT) implications when buying and selling property within an SMSF. They point out that SMSFs benefit from concessional CGT rates, primarily if the property is held for more than 12 months and the potential for CGT exemption during the pension phase. Experts advise strategic planning around the timing of property sales and holding periods to minimise tax liabilities. They also suggest using capital losses to offset gains to manage the overall impact of capital gains tax liability effectively.


Final Tips

  • Seek Professional Advice: Consult with financial advisors, accountants, and legal professionals to ensure compliance and optimise your investment strategy.

  • Regular Reviews: Review your SMSF’s investment strategy and property performance regularly to ensure they continue to meet your retirement objectives.

  • Stay Informed: Keep up-to-date with changes in superannuation laws and market trends to make informed investment decisions.


Buying property using an SMSF can be a powerful strategy for building retirement wealth, offering potential benefits such as stable rental income, capital growth, and tax advantages. However, it requires careful planning, strict compliance with superannuation laws, ongoing property management fees and thorough due diligence.

By understanding the rules and regulations, selecting the right property type, and managing the investment effectively, you can leverage your SMSF to achieve your retirement goals. Whether you’re considering residential or investment property, the key is to ensure that every decision aligns with the sole purpose of the super fund: providing retirement benefits to the fund’s members.

By following these simple steps and staying proactive, you can successfully navigate the complexities of buying property with your SMSF and secure a prosperous retirement.

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FAQs: Buying Property Using SMSF

Yes, you can use your SMSF to buy an investment property, provided it complies with the SMSF rules and regulations.

Your SMSF can invest in residential, commercial, or industrial properties, as long as they are solely for investment purposes and comply with SMSF regulations.

No, you cannot live in the property, nor can any related parties (such as family members). The property must be an investment property and not used for personal purposes.

The sole purpose test ensures that the SMSF is maintained solely for providing retirement benefits to its members. This means any property purchased must be for investment purposes only.

Yes, your SMSF can borrow money through a Limited Recourse Borrowing Arrangement (LRBA) to purchase an investment property.

An LRBA is a loan structure where the lender’s recourse is limited to the asset purchased. This means the lender can only claim the property itself in the event of a default, not other assets of the SMSF.

  • Establish and fund the SMSF.

  • Develop an investment strategy that includes property.

  • Find a suitable property that complies with SMSF rules.

  • Obtain financing through an LRBA if needed.

  • Purchase the property through a custodian trust.

  • Manage the property in accordance with SMSF regulations.

Income from the property is taxed at a concessional rate of 15%. Capital gains on assets held for more than 12 months are taxed at a discounted rate of 10%, and in pension phase, rental income and capital gains can be tax-free.

Yes, the property cannot be rented to members of the SMSF or their relatives. It must be rented to unrelated third parties.

Generally, SMSFs cannot buy residential property from a related party, but they can buy business real property from a related party if it meets certain conditions.

mansour soltani


Mansour has spent more than two decades involved in the purchase and sale of real estate, acquiring both investment and commercial properties throughout Australia, including in major cities and smaller regional locations.

He is the proprietor of a finance brokerage firm, overseeing a portfolio worth in excess of 75 million in loans and serving a diverse clientele across Australia and a regular contributor to money.com.au. This has equipped him with extensive knowledge in various investment tactics, allowing him to offer significant insight.

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