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Self-Managed Superannuation Funds (SMSFs) have become increasingly popular among Australians who want more control over their retirement savings. One of the investment options available within an SMSF is investing in property. This allows individuals to leverage their superannuation to acquire real estate assets.

However, like any investment strategy, there are pros and cons to consider before diving into the world of property investment through an SMSF.

Pros of using an SMSF to invest in property

Potential for high returns

Property has historically been a sound investment, with the potential for long-term capital growth and rental income. By leveraging their retirement savings through an SMSF, people can potentially enjoy substantial benefits from property price appreciation. Historically, the Australian property market has shown resilience and steady growth, often outpacing inflation and other investment classes in the long term.

Regular rental income from property investments can provide a steady cash flow, which can be particularly advantageous during the accumulation phase of the SMSF. This income can be reinvested or used to pay off the property loan, enhancing the overall financial stability of the fund.


Investing in property through an SMSF allows for diversification beyond traditional assets like stocks and bonds. This diversification can help mitigate risk and potentially lead to more stable returns over time.

By including property in the investment portfolio, SMSF trustees can spread the risk across different asset classes. This can protect the fund from volatility in the stock market or other investment types.

Real estate tends to be less volatile than stocks and bonds. Even during economic downturns, property values do not typically fluctuate as wildly as stock prices, providing a more stable investment foundation.

Tax advantages

SMSFs benefit from certain tax advantages. Rental income received from the property is generally taxed at a concessional rate of 15% during the accumulation phase and can be tax-free once the SMSF enters the pension phase. Additionally, capital gains made on the property can be taxed at a discounted rate of 10% if held for longer than 12 months.

  • Concessional tax rates: During the accumulation phase, rental income received from the property is generally taxed at a concessional rate of 15%. Once the SMSF enters the pension phase, this income can be tax-free, significantly enhancing the net returns.
  • Capital gains tax (CGT) benefits: Capital gains on property held for more than 12 months are taxed at a discounted rate of 10%. This is lower than the standard CGT rate, providing a significant tax saving.
  • Tax deductibility: Expenses related to the property, such as maintenance, management fees, and interest on loans, are generally tax-deductible within the SMSF, further enhancing tax efficiency.

Control and flexibility

Investing in property through an SMSF gives you control over your investment decisions. You can choose the specific property you want to invest in, negotiate the terms, and manage the property directly. This level of control allows you to tailor your investment strategy to your preferences and objectives.

  • Direct management: Trustees can choose specific properties, negotiate terms, and directly manage the property. This hands-on approach allows trustees to align the investment with their preferences and financial goals.
  • Tailored investment strategy: Trustees can develop and implement a customized investment strategy, focusing on properties that meet specific criteria, such as location, type, and expected returns. This flexibility is particularly beneficial in adapting to changing market conditions and personal circumstances.
  • Strategic use of borrowing: SMSFs can borrow to invest in property under certain conditions, allowing trustees to leverage their existing superannuation savings to acquire higher-value assets than they might otherwise be able to afford​

Cons of using an SMSF to invest in property

Higher costs and limited liquidity

Investing in property through an SMSF can be expensive due to several associated costs and the illiquid nature of real estate assets.

  1. Acquisition Costs: Property acquisition involves substantial costs, including stamp duty, legal fees, inspection fees, and potentially higher borrowing costs due to stricter lending criteria for SMSFs. These costs can quickly add up, reducing the initial capital available for investment.
  2. Ongoing Expenses: Once acquired, property investments entail ongoing expenses such as property management fees, maintenance and repair costs, insurance, and council rates. These recurring costs can impact the overall return on investment.
  3. Limited Liquidity: Real estate is an illiquid asset, meaning it can be challenging to quickly convert property into cash. This limited liquidity can be problematic if the SMSF needs to access funds for other investments or to meet pension obligations. In times of financial need, selling a property can take months, and the sale may be affected by market conditions​

Lack of diversification

While property can provide diversification benefits, investing a significant portion of your retirement savings in a single asset class carries risks. If the property market experiences a downturn or if the property you invested in underperforms, it could have a significant negative impact on your overall retirement savings.

If the property market experiences a downturn, the value of the investment can decrease significantly, impacting the overall value of the SMSF. Unlike more diversified portfolios that spread risk across various asset classes, a property-heavy portfolio is more vulnerable to sector-specific declines.

The performance of a single property can also be influenced by various factors, such as location, tenant reliability, and local economic conditions. If the property underperforms due to these factors, it can have a substantial negative impact on the SMSF's overall returns​

Regulatory and compliance burden

Managing an SMSF requires compliance with various rules and regulations set by the Australian Taxation Office (ATO). There are strict guidelines that must be followed, including restrictions on related-party transactions, property use, and borrowing arrangements. Failure to comply with these regulations can result in penalties or loss of tax concessions.

Concentration of risk

Investing in property through an SMSF means that a large portion of your retirement savings will be tied up in the property market. Property values can fluctuate, and economic conditions can impact the rental income received. This concentration of risk may not be suitable for everyone, especially those who prefer a more diversified investment approach.

Things to consider when using an SMSF to invest in property

Before using an SMSF to invest in property, there are several important factors to consider:

Seek professional advice

It is crucial to consult with a financial advisor or an SMSF specialist who can guide you through the complexities of SMSF property investment. They can help you understand the risks involved, ensure compliance with regulations, and evaluate the suitability of property investment within your overall retirement strategy.

Cash flow and repayment capacity

Assess your SMSF's cash flow and repayment capacity before committing to a property investment. Consider factors such as loan repayments, ongoing property expenses, and potential periods of vacancy. It's important to ensure your SMSF has sufficient funds to cover these costs without compromising your retirement savings.

Find out more

You can check out loans.com.au's SMSF loans. Or, if you're ready to get started chat with their team of lending specialists today and find out how you could save thousands.

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