SMSF Property Investing
Self-managed super funds can borrow to purchase property using a Limited Recourse Borrowing Arrangement (LRBA). This guide explains how LRBAs work, the property restrictions imposed by the Superannuation Industry (Supervision) Act 1993, lender requirements, and the role of a specialist broker.
What Is a Limited Recourse Borrowing Arrangement?
A Limited Recourse Borrowing Arrangement (LRBA) permits self-managed super funds to borrow money for acquiring assets, including property. If the SMSF defaults, the lender can only claim against the specific asset — not other fund holdings.
LRBAs were introduced in 2007 through amendments to the Superannuation Industry (Supervision) Act 1993. The ATO's LRBA guidance serves as the primary reference.
The Bare Trust Structure Explained
The bare trust (holding trust) is essential to the LRBA structure:
- The SMSF trustee establishes a bare trust with a separate trustee
- The bare trustee holds legal title to the property
- The SMSF holds the beneficial interest, receiving rental income and capital growth
- The SMSF makes loan repayments from its income
- Once fully repaid, legal title transfers from the bare trust to the SMSF
The bare trust must be correctly established from inception. A specialist SMSF lawyer must draft the bare trust deed.
Eligible Properties and Key Restrictions
- Single acquirable asset rule: The SMSF can only borrow to purchase one acquirable asset per arrangement
- Residential property — no related party occupation: Residential property cannot be occupied by fund members or related parties
- Commercial property — related party leasing permitted: Commercial property may be leased to related parties at arm's length market rates
- No improvements during the loan: Renovations cannot be funded by the LRBA loan; fund cash must cover these
- Sole purpose test: The investment must maintain the fund's sole purpose of providing retirement benefits
The ATO provides detailed sole purpose test guidance.
SMSF Loan Requirements
- Minimum SMSF balance: Most lenders require $200,000 to $300,000
- Rental yield: Lenders typically seek 4% or higher
- Serviceability: The fund must service the loan from its own income
- Fund structure: Most lenders prefer corporate trustees
- Compliance history: Clean ATO compliance records required
Rates, LVR, and Costs
- Interest rates: Typically 0.5% to 1.5% above standard investment loan rates
- Maximum LVR — residential: Typically 70–80%
- Maximum LVR — commercial: Typically 65–70%
- Establishment costs: Budget $2,000–$5,000 for additional legal and setup costs
ATO Compliance and the Investment Strategy
- Investment strategy: Must explicitly address borrowing and property investment
- Safe harbour interest rates: For related-party loans, the ATO publishes safe harbour rates
- Annual audit: An approved SMSF auditor must conduct annual audits
- Annual return: Must be lodged reporting the LRBA, property income, and expenses
What Professional Advice Do You Need?
SMSF property investing requires a specialist team: SMSF lawyer, licensed financial adviser, SMSF accountant, SMSF auditor, and specialist mortgage broker.
Visit our SMSF home loans page or submit an enquiry for specialist connections.
Frequently Asked Questions
Can I live in a property owned by my SMSF?
No. Residential property purchased through an LRBA cannot be occupied by fund members or related parties.
Can my SMSF buy a property from me personally?
Generally no for residential property. Commercial property may be acquired from a related party if it meets business real property definitions and is purchased at market value.
What happens when the loan is repaid?
Legal title transfers from the bare trust to the SMSF. The property becomes a regular SMSF asset.
Can I renovate a property held in an LRBA?
Maintenance and repairs can be funded from SMSF cash. Improvements that change the asset's character cannot be funded by the LRBA loan.
How many properties can my SMSF borrow to buy?
There is no limit, provided each borrowing targets a separate single acquirable asset and the fund can service all loans.