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.