Many Australians are surprised to learn that their superannuation can be used to invest in property.
Through a Self-Managed Super Fund (SMSF), eligible investors may be able to purchase residential or commercial property and, in some cases, borrow to do so. For those looking to take greater control of their retirement strategy, SMSF property investment can be an attractive option.
But how does it work, and is it right for you?
A Self-Managed Super Fund (SMSF) is a private superannuation fund that you manage yourself. Unlike traditional retail or industry super funds, SMSF trustees make their own investment decisions and are responsible for ensuring the fund complies with superannuation laws.
An SMSF can invest in a range of assets, including shares, managed funds, cash and property.
Yes. Under a Limited Recourse Borrowing Arrangement (LRBA), an SMSF may be able to borrow funds to purchase a property.
The property is held in a separate trust while the loan remains in place, and if the loan defaults, the lender’s rights are generally limited to that specific asset rather than the entire SMSF.
SMSF loans are available through a select group of lenders and typically have different lending criteria compared to standard home loans.
An SMSF can generally purchase:
Importantly, strict rules apply regarding who can use the property.
For example, members of the SMSF generally cannot live in a residential property owned by the fund, nor can it be rented to related parties.
Commercial property, however, may be leased to a related business provided it meets compliance requirements and is conducted on commercial terms.
Rental income and capital gains may be taxed at concessional rates within superannuation, depending on the fund’s circumstances and stage.
Property can provide potential capital growth while generating rental income that contributes to retirement savings.
SMSF trustees have direct control over investment decisions and can build a strategy aligned with their retirement goals.
Business owners may be able to purchase their business premises through an SMSF and lease the property back to their operating business, subject to compliance requirements.
Most SMSF lenders require a larger deposit than standard property loans.
As a general guide, SMSFs often need between 20% and 35% of the property’s value, plus sufficient funds to cover stamp duty, legal fees, lender costs and ongoing SMSF expenses.
Every lender has different requirements, which is why obtaining advice early is important.
Not necessarily.
SMSF property investment can be complex and involves additional costs, compliance obligations and responsibilities. It may not suit every investor or every super balance.
Before proceeding, it’s important to seek advice from your accountant, financial adviser and SMSF specialist to determine whether an SMSF property strategy aligns with your personal circumstances and retirement objectives.
SMSF lending is a specialised area of finance, and not all lenders offer SMSF loans.
At DMC Finance, we help clients navigate the SMSF lending process by:
If you’re considering purchasing property through your super, speak with Dane Carmody to explore your options and understand what’s possible with your SMSF.
