Get help getting started with an SMSF loan

If you have a self-managed super fund (SMSF) you can get a loan to buy a property through your fund.

Whether you’re buying your first investment property through your SMSF or you’re a seasoned pro looking to expand their portfolio, we can help you get started with an SMSF loan.

Simply fill in your details below and one of our advisors will get in touch to help you.

Self-managed super fund (SMSF) home loans

Buying a property through an SMSF loan

It is possible to get a loan to buy a property through your SMSF, but it’s a highly specialised and complex topic and strict rules apply.

Australian residents who currently have an SMSF, or are in the process of establishing an SMSF, can take out an SMSF loan to purchase or refinance a residential or commercial investment property.

Buying a property through an SMSF using an LRBA

All SMSF loans need to be taken out through a limited recourse borrowing arrangement (LRBA), which means that in order to limit the recourse of the lender, a separate trust and trustee have to be set up to minimise the risk to other assets in the fund.

In more simple terms, if the SMSF is unable to continue making repayments on the loan and falls into arrears, the lender will try and recover its losses by seizing the assets. Because the property is in a separate trust to the SMSF, the lender can’t pursue the assets in the SMSF which means the assets are protected from the risk of being repossessed by the lender.

There are a few things you need to consider before entering into an LRBA. These include whether the asset you’re using it to purchase passes the sole purpose test, if the loan can be sold to another party, and whether or not the SMSF can cope with an interest rate rise.

As well as using your SMSF to purchase an investment property, you can also use borrowed cash from an LRBA to pay for maintenance and repairs to the property that is part of the SMSF, however, you cannot use these funds to make improvements/additions to the property, such as adding a granny flat or an extension.

How does it work?

The actual process of buying a property through an LRBA isn’t too dissimilar to a regular property purchase, however, the difficulty lies in processing the application. If the loan application isn’t properly structured or compliant, there can be hefty fines of over $200,000 for trustees. This is why it’s strongly recommended to seek out the expert help of an accountant or mortgage broker.

This is generally how the application process works when purchasing an investment property through an LRBA:

  • You, the trustee, and other trustees (if applicable) find an investment property you want to purchase.
  • A custodian (also known as a bare trustee) is then appointed for the property. They hold the property title on the trustee’s behalf until the loan has been paid off.

  • You submit the loan application with all the documentation.
  • The custodian then has to issue payment for the deposit and the contracts for the purchase of the property are exchanged.
  • Provided the lender approves your loan application, the custodian will then put the property up as security with the lender so the transaction can be finalised, and pay the stamp and legal costs.
  • After the loan has reached settlement, you will start making the loan repayments and collecting rent. If the rent isn’t enough to cover the repayments, the difference must be made up from internal SMSF funds.
  • After the loan has been fully repaid, the title can be transferred from the custodian to the SMSF.

What do you need to do before you borrow?

It’s extremely important to seek out independent legal and financial advice about your SMSF borrowing money to purchase an investment property. Because SMSF loans are a very niche and complex topic, it’s important to make sure you understand the legislation around what types of properties you’re allowed to purchase, and what restrictions there are on the investment property. For example, if you’re buying a residential property as an investment, you’re not allowed to live in the property.

Which lenders offer SMSF loans?

There aren’t many lenders who offer SMSF loans in Australia anymore due to their complexity and small profit margins. At the time of writing, these lenders offer SMSF loans:

  • La Trobe Financial
  • Liberty Financial
  • Bank of Queensland (BOQ)
  • Switzer Home Loans
  • Mortgage House
  • Freedom Lenders
  • Reduce Home Loans
  • Rate Chaser Home Loans
  • LJ Hooker Home Loans
  • Regional Australia Bank

SMSF loan FAQs

Are there no deposit SMSF loans?

No there isn’t. At a minimum, you need 24%-25% of the purchase price to cover the 20% deposit and other costs like stamp duty. However, the existing funds in your superannuation can be used as a deposit. You can move these funds to your SMSF and use them as a deposit to buy a property, meaning you don’t need to save up a deposit like you would for a traditional property purchase.

Can you live in the property?

You cannot buy a property in your SMSF that you intend to live in as a home or rent for yourself or another trustee. You also cannot have related parties living in the property or renting it.

Will the lender accept my super contributions?

If you’re close to retirement age, the lender may not accept your super contributions. If this is the case and you no longer have personal income, your super contributions will cease and the lender may shorten the loan term or reduce the amount of the loan so the rental income will be enough to cover the loan repayments.

With the lender accept other forms of income?

It may vary from lender to lender, but generally speaking, many lenders won’t accept income from shares or interest from the current assets of your trust. If you’re selling an asset of your trust to use for the deposit, this is also generally not accepted.

Can I get low interest rates?

The kind of interest rate will depend on the lender you apply with as there can be big differences in pricing between lenders. This is why it’s always a good idea to shop around and compare.

How long does it take to get approval?

It can take a lot longer to get approval for an SMSF loan than a regular home loan because the application process is very complex. It generally takes one week to get together the documents required to apply for the loan, and another week for the lender to assess and pre-approve the loan.

What kinds of properties can your SMSF purchase?

An SMSF can be used to buy a residential property or a commercial property, with commercial properties generally being more popular among investors. Residential properties come with several restrictions such as not being able to live in the property.