How to invest in property using your SMSF

couple talking to a broker about SMSF

Want to use your super to invest in property? Buying property through your super can help you open a door into the property market.

With the rising cost of living, combined with uncertainty around interest rates and property prices, you may feel like buying a home or investment property is out of reach. But there is a way you may be able to reap the rewards of property investment and set yourself up for retirement – by investing through your super. While some super funds let you invest in property indirectly or buy your first home through the First Home Super Saver scheme, self-managed super funds (SMSFs) are different.


What are the types of super funds?

Most Australians have their retirement savings in one of the other four categories of super funds: industry, retail, corporate or public sector.

Industry super funds

Industry super funds

generally cater to people working within a particular industry, such as construction or hospitality. However, many of these funds are open to anyone, regardless of their industry
Retail super funds

Retail super funds

are traditionally run by banks or other profit-making financial institutions. Some profit goes to members’ accounts, some goes to the owners of the fund (that is, the shareholders). 
Corporate funds

Corporate funds

are set up by an employer specifically for its employees. These funds usually have specific benefits tailored for the company’s employees
Public sector funds

Public sector funds

exist for public sector (or government) employees. These funds are becoming less common and many are now closed to new members


What is an SMSF?

Like other super funds, SMSFs are a way for you to save for retirement. Unlike other super funds, SMSFs are self-managed. The members (no more than six) of the fund are usually also the trustees – which means they are responsible for running and making any decisions related to the fund.

In some cases, a corporate trustee is appointed to handle the decision making and management. If the SMSF has a corporate trustee, all members are directors of the trustee.


How does an SMSF work?

The rules for running an SMSF are more complex than other super funds. If you’re thinking about  setting one up then you may want to first seek financial advice to see if it’s right for you.

If you decide to go ahead, it could be a good idea to speak to an SMSF professional who can help guide you through the process. 

There are several steps to setting up an SMSF:


Choose the trustee structure, either individual member trustees or corporate trustee.


Appoint the trustee or directors.


Set up a trust and establish a trust deed to govern its operation.


Make sure your SMSF is an Australian super fund (to access tax concessions).


Register your SMSF and apply for an Australian Business Number (ABN) with the Australian Taxation Office (ATO).


Set up a bank account to receive contributions and pay expenses.


Get an electronic service address to accept contributions from employers.


Develop an exit strategy so you know what will happen when it’s time to close your SMSF.

While there is no minimum amount you need to set up an SMSF, you need at least enough to make it cost effective based on set up and ongoing costs. The commonly suggested opening balance according to the SMSF association1 is around $200,000. In 2022, the average starting balance was $300,000, up from $220,000 in 20212.


Can I purchase property using my SMSF?

Using your super via an SMSF to purchase an investment property could be a useful way to generate wealth over the long term and build up your nest egg. But before you decide to invest in property through your SMSF, think about whether it aligns with your SMSF investment strategy and risk profile which may vary from person to person.


How can I invest in property through my SMSF?

Buying property using an SMSF is different to buying property with money from your savings account.

There are specific rules that apply to investing in property using an SMSF, including:

  • Funds invested in an SMSF can only be used to provide for its members’ retirement. This is known as the ‘sole purpose test’.
  • Property must be bought at ‘arms-length’, that means it can’t be from a related party of a member.
  • No member or related party of a member can live in or rent the property.
  • A member or related party of a member can lease a commercial property owned by the SMSF at market rates, but only to use for business purposes.


You can invest in property by setting up a separate trust within your SMSF. The money in that trust becomes a deposit and together with an SMSF loan (see more below) is used to buy the property.


Can I live in my SMSF property when I retire?

Yes, you can. When you retire, you have two options:

  1. Wind up your SMSF and sell the assets, including property, and receive the money in cash.
  2. Keep the SMSF running.

If you choose the second, you may be able to live in the SMSF property by doing an ‘in-specie’ transfer of ownership from the SMSF to you personally. This process isn’t as easy as it sounds so it’s a good idea to seek professional advice if you decide to take this route. There are also a few conditions you’ll have to meet if you want to live in the property at retirement:

  • The property passed the ‘sole purpose test’ while owned by the SMSF.
  • It has correctly transferred to you as the new owner.
  • You’ve reached your preservation age and can access your super.


What is an SMSF loan?

A self-managed super fund loan lets you use your SMSF funds for a deposit to buy a commercial or residential property and borrow the balance. You can get an SMSF loan from your bank, or a non-bank lender like Pepper Money. Like a home loan, an SMSF loan is useful if your SMSF doesn’t have enough funds to pay for the property outright.

Borrowing through your SMSF to invest in property is restricted by tight borrowing conditions. These conditions are called a ‘limited recourse borrowing arrangement’ (LRBA). With a LRBA, you can only purchase a single asset – a residential or non-residential property. This asset is held in a separate trust so if the loan defaults, the lender can’t take any of your other assets. Because of this higher risk, SMSF loan interest rates may be higher than traditional home loans. 

How much can I get from an SMSF loan?

At Pepper Money, we can help you with an SMSF loan worth up to 80% of the value for a residential property and 75% of the value for a commercial property, subject to eligibility criteria. Learn more about our SMSF loan options.


Want to apply for an SMSF loan?

If you’re eligible for an SMSF loan, once you’ve received professional advice, the next step is to get pre-approval. Whether you’re looking to use your SMSF to invest in residential or commercial property, we’re here to help. 

Ready to take the next step and put your SMSF to work? Call us on 137 377, speak to your broker or Contact us to apply.

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