The Complete SMSF Property Loan Guide
Everything You Need to Know About Limited Recourse Borrowing Arrangements
A comprehensive guide to using your self-managed super fund
to build wealth through property investment
ESTEB AND CO
SMSF Lending Specialists
Table of Contents
- Introduction to SMSF Property Lending
- What is a Limited Recourse Borrowing Arrangement (LRBA)?
- Why Invest in Property Through Your SMSF?
- SMSF Loan Requirements
- The SMSF Property Loan Process
- SMSF Lender Comparison
- Property Types: What Can You Buy?
- Tax Implications & Benefits
- Real-World SMSF Loan Case Studies
- Common Mistakes to Avoid
- SMSF Compliance Checklist
- Frequently Asked Questions
- Next Steps
1. Introduction to SMSF Property Lending
Self-Managed Super Fund (SMSF) property lending has become one of the most powerful wealth-building strategies available to Australian investors. By combining the tax advantages of superannuation with the wealth-building potential of property, SMSF loans offer a unique opportunity to accelerate your retirement savings.
However, SMSF lending is complex. Unlike standard home loans, SMSF property loans involve strict ATO regulations, specialized legal structures, and unique compliance requirements. Get it wrong, and you could face significant penalties or even lose your fund's complying status.
📊 SMSF Property Lending by the Numbers
- 600,000+ self-managed super funds in Australia
- $876 billion in total SMSF assets under management
- 17-20% of SMSFs hold direct property
- $100k-$5M typical SMSF loan range
- 0-15% tax on rental income vs 47% personal tax rate
This guide will walk you through everything you need to know about SMSF property loans, from understanding the basic structure to selecting the right lender and ensuring ATO compliance.
2. What is a Limited Recourse Borrowing Arrangement (LRBA)?
A Limited Recourse Borrowing Arrangement (LRBA) is the legal structure that allows your SMSF to borrow money to purchase property while protecting your other super assets.
How LRBA Works
In a standard loan, if you default, the lender can pursue all your assets to recover the debt. An LRBA is different:
🛡️ The Limited Recourse Protection
If your SMSF defaults on the loan, the lender can ONLY claim the property purchased with that loan.
Your other SMSF assets - shares, cash, other properties - remain protected. This is called "limited recourse" because the lender's recourse (ability to claim assets) is limited to the single asset purchased.
The Bare Trust Structure
To comply with superannuation law, the property must be held in a separate legal structure called a "bare trust" (also known as a holding trust) until the loan is fully repaid.
How the Bare Trust Structure Works:
- SMSF trustees establish a bare trust and appoint a custodian
- Bare trust holds legal title to the property
- SMSF has beneficial ownership and receives all rental income
- Loan is secured against the property in the bare trust
- Once paid off, property transfers to SMSF ownership
Key LRBA Rules
- Single Acquirable Asset: Each LRBA can only be used to acquire one asset (or identical assets like a collection of identical shares)
- No Improvements: You cannot use borrowed funds to improve the property - only to purchase it
- Arm's Length Terms: Loan must be on commercial terms if borrowing from a related party
- Replacement Asset: If property is destroyed, you can replace it with insurance proceeds
3. Why Invest in Property Through Your SMSF?
Tax Benefits
| Tax Type |
Personal Investment |
SMSF (Accumulation) |
SMSF (Pension Phase) |
| Rental Income |
Up to 47% |
15% |
0% |
| Capital Gains (<12 months) |
Up to 47% |
15% |
0% |
| Capital Gains (12+ months) |
Up to 23.5% |
10% |
0% |
💰 Real Tax Savings Example
Scenario: $600,000 property, $30,000 annual rental income, earning $120,000 personal income
Personal Investment:
Rental income taxed at 39% = $11,700 tax
After 10 years, sell for $900,000 (50% CGT discount)
Capital gains tax: $150,000 × 23.5% = $35,250
SMSF Pension Phase:
Rental income tax: $0
Capital gains tax: $0
Total tax saved: $152,250
Leverage Your Super
SMSF lending allows you to control significant property assets with a fraction of the cost:
- Borrow up to 80% of property value
- Control $500k+ assets with $100k-$150k SMSF balance
- Use existing super contributions as your deposit
- Accelerate wealth creation through gearing
Long-Term Wealth Building
- Capital Growth: Property values typically double every 7-10 years
- Rental Income: Passive income flowing to your super fund
- Compound Growth: Rental income reinvested tax-effectively
- Retirement Asset: Tangible asset to support your retirement
Business Premises Opportunity
Your SMSF can purchase commercial property and lease it to your own business:
- Business pays market rent to your super fund
- Rent is tax-deductible to your business
- Builds super wealth while you're still working
- Rent taxed at 15% (or 0% in pension phase) vs company tax of 25-30%
4. SMSF Loan Requirements
Minimum SMSF Balance
Most lenders require your SMSF to have sufficient balance to cover:
- Deposit: 20-30% of purchase price
- Costs: Stamp duty, legal fees, bare trust setup ($5,000-$15,000)
- Liquidity: 12-24 months of loan repayments
| Property Price |
Deposit (20%) |
Costs (Est.) |
Liquidity (12m) |
Total SMSF Balance Needed |
| $400,000 |
$80,000 |
$10,000 |
$20,000 |
$110,000 |
| $600,000 |
$120,000 |
$15,000 |
$30,000 |
$165,000 |
| $1,000,000 |
$200,000 |
$25,000 |
$50,000 |
$275,000 |
⚠️ Lender Variations
Granite Home Loans: No minimum net asset requirement
Homestar Finance: No liquidity test required
Most other lenders: $150k-$200k minimum SMSF balance
SMSF Structure Requirements
- Corporate Trustee: Strongly preferred (almost essential)
- Compliant Trust Deed: Must allow property investment and borrowing
- Investment Strategy: Document stating property investment is part of strategy
- Up-to-date Compliance: Tax returns lodged, audit completed
Loan-to-Value Ratios (LVR)
| Property Type |
Standard LVR |
Maximum LVR |
Typical Rate |
| Residential Investment |
70-80% |
90% |
From 6.19% p.a. |
| Commercial Property |
70% |
80% |
From 6.69% p.a. |
| Industrial Property |
65-70% |
75% |
From 6.69% p.a. |
Sole Purpose Test
The property must be maintained solely for providing retirement benefits. This means:
❌ NOT ALLOWED:
- You cannot live in the property
- Your relatives cannot live in the property
- You cannot use it as a holiday home (even occasionally)
- You cannot store personal belongings there
- The property must be genuinely available for rent
5. The SMSF Property Loan Process
1Initial SMSF Assessment (1-2 days)
What We Review:
- SMSF trust deed and investment strategy
- Current fund balance and contribution history
- Member details and fund structure
- Property investment goals
What We Determine:
- Borrowing capacity (how much you can borrow)
- Which lenders suit your situation
- Structural requirements (bare trust, corporate trustee)
- Timeline and next steps
2Bare Trust & Legal Structure Setup (5-10 days)
What Needs to Be Established:
- Bare trust deed (drafted by SMSF lawyer)
- Corporate trustee (if not already in place)
- Custodian arrangement (varies by lender)
- Investment strategy update
Costs:
- Bare trust setup: $800-$1,500
- Corporate trustee: $1,500-$2,000 (if new)
- Legal review: $500-$1,000
3Find Your Property
You can start looking for property once you have pre-approval, but ensure:
- Property meets sole purpose test (investment only)
- Not purchased from related party (strict rules)
- Property type is acceptable to your lender
- Price is within your approved borrowing capacity
Tip: Get pre-approval before making offers. This gives you confidence and shows sellers you're a serious buyer.
4Formal Loan Application (10-20 days)
Documents Required:
- SMSF trust deed
- Latest financial statements
- Tax returns (last 2 years)
- Investment strategy
- Member identity documents
- Bare trust documentation
- Property contract of sale
Lender Assessment Process:
- Property valuation ordered
- SMSF fund strength assessed
- Serviceability calculated (rental income + contributions)
- Compliance check on structure
5Loan Approval & Settlement (5-7 days)
Once approved:
- Formal loan offer issued
- Coordinate with solicitor and accountant
- Funds released from SMSF for deposit and costs
- Settlement occurs (property title in bare trust name)
- Loan documentation finalized
6Ongoing Management
Your Responsibilities:
- Make loan repayments from SMSF bank account
- Ensure rental income flows to SMSF
- Keep property insured and maintained
- Lodge annual SMSF tax returns
- Complete annual audit (SMSF requirement)
- Update investment strategy if needed
6. SMSF Lender Comparison
| Lender |
Max Loan |
Max LVR |
Rate From |
Key Feature |
| Pepper Money |
$3M |
90%* |
6.2% |
Redraw facility available |
| Thinktank |
$5-8M |
80% |
6.3% |
High loan amounts, commercial |
| La Trobe Financial |
$3M |
80% |
6.25% |
Established, reliable |
| Granite Home Loans |
Varies |
90% |
6.4% |
No net asset requirement |
| Homestar Finance |
Varies |
80% |
6.35% |
No liquidity test |
| Bank of Queensland |
Varies |
80% |
6.5% |
Traditional bank option |
| Liberty |
Varies |
80% |
6.6% |
Flexible criteria |
*Select scenarios only. Rates as of November 2025 and subject to change. LMI may apply above 80% LVR.
💡 Choosing the Right Lender
Each lender has different:
- Serviceability calculators (how they assess your ability to repay)
- Property type preferences (some prefer commercial, others residential)
- Minimum balance requirements (from $0 to $200k)
- Liquidity requirements (0 to 24 months reserves)
- Turnaround times (approval speed varies)
We compare all lenders to find your best match based on rate AND policy fit.
7. Property Types: What Can You Buy?
✅ Residential Property
Allowed:
- Houses, townhouses, apartments, units
- Must be for investment (rental income)
- Cannot be occupied by fund members or relatives
- Can be new or established
LVR: Up to 80% (some lenders 90%)
Rates: From 6.19% p.a.
✅ Commercial Property
Allowed:
- Office buildings, retail shops, warehouses
- Can be leased to your own business (at market rent)
- Generally preferred by lenders (seen as lower risk)
- Must have appropriate zoning
LVR: Up to 70-80%
Rates: From 6.69% p.a.
🏗️ Business Premises Strategy
One of the most tax-effective SMSF strategies:
- SMSF borrows to buy your business premises
- Your business pays market rent to your SMSF
- Rent is tax-deductible to your business (25-30% tax rate)
- Rent is taxed in SMSF at 15% (or 0% in pension phase)
- You're building super wealth while running your business
✅ Industrial Property
Allowed:
- Factories, storage facilities, logistics centers
- Can be leased to your business or third parties
- Often higher rental yields
LVR: Up to 70-75%
Rates: From 6.69% p.a.
❌ NOT Allowed
You CANNOT buy:
- Property for personal use (even part-time)
- Holiday homes used by members
- Property from yourself or relatives (strict related party rules)
- Property primarily for member enjoyment
- Residential property in some SMSFs (check trust deed)
Special Restrictions:
- Off-the-plan: Some lenders won't accept
- Serviced apartments: May not be acceptable
- Properties requiring major renovation: Usually not allowed
8. Tax Implications & Benefits
Accumulation Phase (Before Retirement)
| Income/Gain Type |
Tax Rate |
Deductions Allowed |
| Rental Income |
15% |
Loan interest, rates, insurance, repairs, depreciation |
| Capital Gains (<12m) |
15% |
Purchase costs, selling costs |
| Capital Gains (12m+) |
10% |
33% CGT discount applies |
Pension Phase (In Retirement)
| Income/Gain Type |
Tax Rate |
Notes |
| Rental Income |
0% |
Tax-free income supporting your pension |
| Capital Gains (any period) |
0% |
Completely tax-free |
💰 Long-Term Tax Strategy Example
Scenario: Buy $600k property at age 50, hold until age 70
Years 1-15 (Accumulation Phase):
- Rental income: $30,000/year taxed at 15% = $4,500/year tax
- 20 years accumulation: $90,000 total tax
Year 15+ (Pension Phase):
- Rental income: $45,000/year taxed at 0% = $0 tax
- Property value: $1.2M, capital gain: $600k taxed at 0%
vs Personal Investment:
- Rental income tax: ~$270,000 (at 39% marginal rate)
- Capital gains tax: ~$140,000 (at 23.5% with discount)
- Total tax saved: $320,000+
Deductions You Can Claim
- Loan Interest: Fully deductible against rental income
- Property Management: Fees paid to agent
- Council Rates: Annual rates and charges
- Insurance: Building and landlord insurance
- Repairs & Maintenance: Ongoing maintenance costs
- Depreciation: Building (2.5%) and chattels (various rates)
- Bare Trust Costs: Annual fees
- Accounting Fees: SMSF compliance costs
9. Real-World SMSF Loan Case Studies
Case Study 1: First SMSF Property Investment
Profile: Sarah & Michael, both 45, combined income $175,000
SMSF Balance: $180,000 (combined from previous employers)
Goal: Purchase first investment property through SMSF
The Strategy:
- Purchase price: $600,000 (3-bed house, Brisbane)
- SMSF loan: $480,000 (80% LVR)
- Deposit from SMSF: $120,000
- Costs: $15,000 (stamp duty, legal, bare trust)
- Remaining SMSF balance: $45,000 (liquidity buffer)
Annual Numbers:
- Rental income: $28,600 (weekly rent $550)
- Loan repayments: $32,500 (interest-only at 6.3%)
- Ongoing costs: $6,000 (rates, insurance, management)
- Cash shortfall: $9,900/year
- Covered by: Annual super contributions ($27,500 × 2 = $55,000)
After 20 Years (Age 65):
- Property value: $1.2M (assuming 4% growth)
- Loan fully repaid from rental income + contributions
- Enter pension phase: Rental income now $50k/year TAX-FREE
- Total equity: $1.2M in their super fund
Case Study 2: Business Premises Purchase
Profile: David, 52, runs accounting firm, SMSF balance $280,000
Goal: Buy office building, lease to his business, save rent + build super
The Strategy:
- Purchase price: $850,000 (commercial office, Melbourne)
- SMSF loan: $680,000 (80% LVR commercial)
- Deposit from SMSF: $170,000
- Business signs 5-year lease at market rent: $65,000/year
Tax Benefits:
- Business deducts $65k rent (saves $16,250 in company tax at 25%)
- SMSF receives $65k rent, taxed at 15% = $9,750 tax
- Net tax saving: $6,500/year vs previous arrangement
- After loan repayment ($45k interest-only), $10k/year builds in SMSF
After 13 Years (Age 65):
- Loan fully repaid
- Property value: $1.1M
- David enters pension phase
- Business still pays $75k rent (indexed), now 0% tax in SMSF
- $75k/year tax-free income supporting his retirement
Case Study 3: Pension Phase Property Hold
Profile: Janet & Robert, both 67, retired
SMSF Balance: $950,000 (pension phase)
Current Situation: Purchased property 15 years ago through SMSF
Property Details:
- Purchased 2010 for $600,000, now worth $1.2M
- Loan balance remaining: $250,000 (being paid down)
- Current rental income: $950/week = $49,400/year
Tax Position (Pension Phase):
- Rental income: $49,400 taxed at 0% = $0 tax
- Deduct loan interest: $16,000
- Net rental income to SMSF: $33,400/year TAX-FREE
- Supports their pension drawdown requirements
Options They Have:
- Hold & Collect Rent: $49k/year tax-free income (after loan paid off)
- Sell Tax-Free: $600k capital gain taxed at 0% in pension phase
- Partial Sale: Sell, pay off loan, invest proceeds in diversified assets
What They're Doing: Keeping property, using rent to fund retirement lifestyle, will leave property in SMSF for estate planning (death benefit to children as super benefit)
10. Common Mistakes to Avoid
❌ Mistake #1: Buying From a Related Party
The Rule: You generally CANNOT buy property from yourself, your spouse, children, or related entities.
Why People Try: "I'll just sell my investment property to my SMSF and get the tax benefits."
The Problem: This is a related party acquisition and strictly prohibited by the SIS Act. It will void your SMSF's complying status.
Limited Exception: Business real property can sometimes be acquired from related parties, but requires specific legal structuring. Always get specialist advice.
❌ Mistake #2: Personal Use of Property
The Rule: SMSF property cannot provide current-day benefit to members.
Violations We've Seen:
- "I'll buy a beach house through my SMSF and use it a few weeks a year" - NOT ALLOWED
- "My son is at university, can he live in the SMSF property?" - NOT ALLOWED
- "I'll store my boat in the commercial warehouse" - NOT ALLOWED
Consequences: SMSF becomes non-complying, entire fund balance taxed at 45%
❌ Mistake #3: Incorrect Bare Trust Structure
The Problem: Using a DIY bare trust template or setting it up incorrectly.
Common Errors:
- Trust deed doesn't meet LRBA requirements
- Wrong trustee appointed
- Property title not registered correctly
- Deed doesn't specify beneficial ownership correctly
Fix: Always use an SMSF specialist lawyer for bare trust setup ($800-$1,500)
❌ Mistake #4: Insufficient Liquidity
The Problem: Not keeping enough cash in the SMSF to cover loan repayments if the property is vacant.
What Happens:
- Tenant leaves, property vacant for 3 months
- SMSF has no cash to cover loan repayments
- Can't make personal contributions mid-year (exceeded concessional cap)
- Forced to sell other SMSF assets at a loss, or
- Default on loan (damages SMSF and personal credit)
Solution: Keep 12-24 months of loan repayments in cash/liquid assets
❌ Mistake #5: Renovating With Borrowed Funds
The Rule: Borrowed funds can ONLY be used to acquire the asset - not to improve it.
Example of Violation:
- Borrow $500k to buy property
- Use $50k of loan to renovate kitchen
- This breaches the single acquirable asset rule
Allowed: You CAN renovate, but funds must come from SMSF cash (not borrowed)
❌ Mistake #6: Not Coordinating With Accountant
The Problem: Going ahead with SMSF loan without consulting your SMSF accountant.
Issues That Arise:
- Timing doesn't align with contribution strategy
- Investment strategy not updated
- Cash flow not properly planned
- Tax reporting set up incorrectly
- Audit issues in following year
Solution: Involve your accountant from day one - they know your fund's tax position
11. SMSF Compliance Checklist
✅ Before You Start
- ☐ SMSF is established and complying
- ☐ Corporate trustee in place (recommended)
- ☐ Trust deed allows property investment and borrowing
- ☐ Investment strategy includes property investment
- ☐ All previous tax returns lodged
- ☐ Latest audit completed and signed off
- ☐ Sufficient SMSF balance (deposit + costs + liquidity)
✅ During Property Purchase
- ☐ Property meets sole purpose test (investment only)
- ☐ Not purchasing from related party
- ☐ Bare trust established by SMSF lawyer
- ☐ Loan is on commercial terms (arm's length)
- ☐ Property title registered in bare trust name
- ☐ LRBA documentation correctly drafted
- ☐ Investment strategy updated
✅ After Settlement
- ☐ Property insurance in place (building and landlord)
- ☐ SMSF bank account set up for rental income
- ☐ Separate accounting for property income/expenses
- ☐ Loan repayments made from SMSF account only
- ☐ Property managed on arm's length terms
- ☐ No personal use of property by members
✅ Ongoing Annual Requirements
- ☐ Lodge SMSF annual return by deadline
- ☐ Complete independent audit annually
- ☐ Review investment strategy annually
- ☐ Maintain member meeting minutes
- ☐ Keep all loan and property documents
- ☐ Ensure contributions within caps
- ☐ Property remains tenanted or genuinely available
- ☐ All income and expenses recorded correctly
⚠️ Penalties for Non-Compliance
If your SMSF becomes non-complying:
- Entire fund balance taxed at 45% (not just property)
- Loss of concessional tax treatment
- Cannot accept new contributions
- Potential personal liability for trustees
- ATO may issue penalties and fines
Compliance is not optional - it's essential.
12. Frequently Asked Questions
Q: Can I live in my SMSF property?
A: No. The sole purpose test prohibits members and their relatives from living in or personally using SMSF property. It must be genuinely held for investment/retirement purposes.
Q: Can my SMSF buy a property I already own?
A: Generally no - this is a related party acquisition. There is a very limited exception for business real property with specific structuring, but residential property transfers are prohibited.
Q: What happens if I can't make loan repayments?
A: The lender can only claim the specific property purchased (limited recourse). Your other SMSF assets are protected. However, defaulting damages the SMSF and may affect trustees' personal credit.
Q: Can I use my own money to pay SMSF loan repayments?
A: You can contribute personal money to your SMSF (within contribution caps), and the SMSF then makes the loan repayments. But you cannot pay directly from personal funds.
Q: How long can the loan term be?
A: Typically 15-30 years, same as residential mortgages. Many SMSF borrowers use interest-only for 10-15 years, then switch to principal & interest or refinance.
Q: Can I negatively gear in my SMSF?
A: Yes - if loan interest and property costs exceed rental income, the loss can offset other SMSF income (e.g., share dividends). But losses cannot offset personal income.
Q: What if property values fall?
A: You continue making repayments as normal. Lenders rarely call in loans due to value falls unless you're in default. Limited recourse protects other SMSF assets.
Q: Can I renovate my SMSF property?
A: Yes, but renovation costs must come from SMSF cash (not borrowed funds). You cannot contribute your own labor - must use paid contractors.
Q: How does pension phase affect the property?
A: When you convert to pension phase (typically age 60-65), rental income becomes tax-free (0% instead of 15%). Capital gains also become tax-free if sold in pension phase.
Q: Can I have multiple SMSF property loans?
A: Yes - subject to your SMSF's borrowing capacity. Each property requires a separate LRBA and bare trust. Lenders assess total exposure.
Q: What's the minimum SMSF balance I need?
A: Most lenders want $150k-$200k minimum. Some (like Granite) have no minimum. You need enough for: 20% deposit + $5-15k costs + 12-24 months liquidity.
Q: Do I need a financial planner?
A: Not required, but recommended for overall strategy. You DO need an SMSF accountant for compliance and tax. We handle the lending side.
13. Next Steps
Now that you understand SMSF property lending, here's how to get started:
1 Book Your Free SMSF Strategy Call
We'll review your SMSF and explain:
- Your borrowing capacity
- Which lenders suit your situation
- Expected rates and costs
- Timeline and process
- Any structural requirements
Duration: 30 minutes
Cost: Free, no obligation
Book: Call 0424 406 977 or visit estebandco.com/smsf-loans
2 Gather Your SMSF Documents
To assess your situation, we'll need:
- SMSF trust deed
- Latest financial statements
- Investment strategy
- Recent contribution history
Don't have these? Your SMSF accountant can provide them.
3 We Compare Lenders For You
We'll compare all 10+ specialist SMSF lenders to find:
- Best rate for your LVR and property type
- Lender whose policies fit your SMSF structure
- Fastest approval timeframe
- Most favorable serviceability calculation
4 Get Pre-Approval
Before you start property hunting:
- We secure formal pre-approval (10-14 days)
- Sets up bare trust structure
- Confirms exact borrowing capacity
- Gives you confidence when making offers
5 Find & Purchase Your Property
With pre-approval in hand:
- Start looking for suitable investment property
- Make offers with confidence
- We handle formal approval once under contract
- Settlement typically 4-6 weeks
📞 Ready to Get Started?
Book your free SMSF strategy call today
Call: 0424 406 977
Email: hello@estebandco.com
Web: estebandco.com/smsf-loans
We'll review your SMSF, explain your options, and guide you through the entire process from application to settlement.