Investing in property with an SMSF: What you need to know


There are countless strategies you can use to build your wealth for a more comfortable retirement – from investing in the share market to starting your own self-managed super fund (SMSF). Property investing is another popular investment avenue, but did you know you can actually purchase residential and commercial real estate through your SMSF? Here’s how.

  1. You need to comply with several rules

Investing in property via your SMSF isn’t as straightforward as purchasing real estate from your own savings. There are a few important regulations you will need to comply with, and failure to abide by them can result in significant penalties from the ATO. Ultimately, you should treat property investing exactly the same as investing in other assets with your super – in all things, keep it at a commercial arm’s length.

Any property you purchase through your SMSF must:

  • Not be bought from a relative of a member of your SMSF
  • Not be lived in by any member of your SMSF or any member’s related parties
  • Not be rented out by a member of your SMSF or any member’s related parties
  • Pass the sole purpose test – that is, the purpose of the investment is only to provide fund members with retirement benefit

If you decide to go through with the purchase and abide by all of the above obligations, the fund will pay only 15% tax on the accrued rental income. Even better, after a year of ownership your SMSF will benefit from an additional one-third discount on any capital gain it makes once you sell it – with your capital gains tax liability dropping to just 10%.

  1. You should have at least 25% of the property’s value in your super

While there is technically no minimum balance you need to have in your self-managed super fund if you want to buy property, it’s recommended that you have – at minimum – $100,000 available. You’ll want to have enough to cover the deposit, fees and any additional expenses of managing the property.

“Ideally, you’ll want at least 25% of the residential property’s value set aside as a deposit,” says Daran Thomson, Managing Director at Hallmark Consulting. “However, this doesn’t necessarily mean you need as much as you might think to secure a high-return property. We have access to new builds in growing CBD areas across Australia for as little as $270,000, so some of our clients start with as little as $80,000 in their super.”

  1. You can’t live in the property while you are still working

If you plan on using the borrowing and tax benefits of buying real estate through your SMSF, be aware you’re not permitted to actually live in it. While you are still employed, you can only rent it out as an investment property. You also can’t rent it to members of your SMSF or any of their relatives. While it might seem frustrating, the restriction is in place because the entire purpose of having superannuation is to support you in retirement, not while you are of working age.

Importantly, if you don’t own the real estate outright when you retire – i.e. if your SMSF still owns the property – then you are not allowed to live in it. However, what you can do is sell your existing home and then put the proceeds of that sale into your SMSF. If you have enough to pay off the property, you can arrange of the title to be transferred to you so that you can live in the home, since you have purchased your retirement property from your SMSF.

  1. If you don’t have enough in your super, you have options

If you are only just starting out on your SMSF journey or if your fund doesn’t currently have enough super to allow you to invest in property, there are other options you can explore. 

Working with a company like Hallmark Consulting also means you have access to other wealth building strategies, like high return managed funds, to boost your superannuation balance before securing an investment property. “We connect our clients to the financial experts and products they need to achieve their wealth goals as quickly as possible,” says Daran.”It’s not always a one-size-fits-all solution, but you can rest assured we’ll get you there.”

Another option is to invest in property under a limited recourse borrowing arrangement (LRBA):

“A limited recourse borrowing arrangement (LRBA) involves a self-managed super fund (SMSF) trustee taking out a loan from a third-party lender. The trustee then uses those funds to purchase a single asset (or collection of identical assets that have the same market value) to be held in a separate trust.” – Australian Taxation Office

As with any lending arrangement, it’s important you consider the merits of an LRBA carefully to ensure it aligns with your long-term SMSF strategy. Find out what would happen if borrowing rates suddenly rose or reduced, as well as whether the loan can be called in early or sold to another party. Working with the experts within the Hallmark Consulting network can help ease any concerns and reveal whether buying property via your SMSF is the right investment for you.

Thinking about diversifying your retirement portfolio with an investment property? We are the SMSF experts, so contact Hallmark Consulting Finance or call 1300 135 295 to find out how we can help you secure the right investment.