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Can Your SMSF Buy Property with a Loan? Here’s What You Need to Know about SMSF Lending.

If you already have a self-managed super fund (SMSF) - or you’re seriously considering setting one up - investing in property can be a smart way to diversify your retirement strategy. And while SMSFs can’t borrow money in the same way individuals can, it is possible to take out a loan under particular conditions using a structure called a Limited Recourse Borrowing Arrangement (LRBA).


Whether you’re an experienced trustee looking to leverage your super for property or you're exploring the potential of an SMSF for the first time, it’s crucial to understand the borrowing rules, risks, and responsibilities involved.


At Citywide LPI Bankstown, Nahil works closely with clients at every stage — from those just starting to consider whether an SMSF is the right vehicle for their goals, to trustees ready to secure finance and purchase a property. Her role is to help you navigate the lending landscape with clarity, confidence, and compliance front of mind.


1. Your SMSF Needs to Be Structurally Compliant


Before you can borrow or even make an offer on a property, your SMSF must be correctly structured. This means:

  • Your trust deed must allow borrowing and property acquisition.

  • The fund must meet the sole purpose test, providing benefits solely for the retirement of its members.

  • All decisions must align with your SMSF’s written investment strategy, and this strategy should reflect the potential risks and rewards of leveraging.

If these aren’t in place before the transaction begins, you could risk breaching superannuation law and this can have serious tax consequences.


2. You Must Use a Limited Recourse Borrowing Arrangement (LRBA)


When an SMSF borrows to purchase property, it must do so through a Limited Recourse Borrowing Arrangement. Under this structure:

  • A separate bare trust (also called a holding trust) is created to legally hold the property on behalf of the SMSF until the loan is repaid.

  • The SMSF is the beneficial owner, and all rental income or gains flow to the SMSF.

  • If the loan defaults, the lender can only recover the secured property and not any other SMSF assets. This is what makes it a “limited recourse” loan.

Getting the LRBA documentation right is critical. Lenders will expect everything to be legally sound, and any misstep in the trust or borrowing arrangement could disqualify the loan or lead to compliance issues.


3. Property and Loan Must Meet ATO and Lender Criteria


Not all properties, or borrowing scenarios, are suitable for SMSFs. Here's what you need to watch for:

Property Criteria:

  • The residential property must be held solely for investment purposes, with no personal use or related-party occupancy.

  • Residential or commercial properties are acceptable, as long as the purchase aligns with your SMSF’s investment strategy.

  • Renovations can be limited: You generally can’t use borrowed funds for significant improvements (only for maintenance or repairs).

Loan Criteria:

  • The loan must be on commercial terms, with appropriate interest rates and repayment conditions.

  • Repayments must be sourced from within the SMSF, typically from rental income, investment earnings, or superannuation contributions.

  • The SMSF must maintain enough liquidity to meet its obligations, including ongoing loan repayments and fund expenses.


4. Risks to Consider Before Borrowing in Your SMSF


Even when done correctly, SMSF borrowing carries essential risks to consider:

  • Liquidity risk – Property is illiquid. If the fund needs to pay out member benefits or cover unexpected costs, it may not be able to act quickly.

  • Servicing risk – Can your SMSF continue making repayments if rental income drops or interest rates rise?

  • Compliance risk – Errors in loan structure, trust setup, or fund strategy could trigger penalties or jeopardise your SMSF’s tax advantages.

  • Exit strategy – What is your long-term plan? Consider how and when the property may be sold, the loan repaid, or the fund wound up.


Borrowing can enhance returns, but it also magnifies risk. Proper planning is key.


5. How Nahil Supports SMSF Lending Clients


At Citywide LPI Bankstown, Nahil brings deep experience and a steady hand to SMSF lending. She understands this isn’t just about getting a loan approved - it’s about making sure every part of the process aligns with your fund’s long-term strategy and complies with lender requirements.

While your accountant remains responsible for reviewing the SMSF setup and ensuring the trust deed is in order, Nahil can assist by reviewing documentation from a lending perspective and ensuring it meets the criteria of your chosen lender. She works closely with your accountant or financial planner to keep everything aligned, from structuring the loan to ensuring the investment fits within your fund’s overall financial picture.

If you don’t yet have an accountant or financial planner, Nahil can connect you with trusted professionals who specialise in SMSFs. She also coordinates the process through to settlement, including liaising with your legal representative, such as Chidiac Legal (link to Chidiac Legal), who handles the settlement, to ensure a smooth and well-managed experience from start to finish.


With Nahil in your corner, you’re not just navigating a complex process - you’re making it work to your advantage.


6. What to Do Next


If you are ready to explore SMSF property investment using borrowed funds, here’s a smart, structured next step:

  1. Book a session with Nahil to assess your options and receive personalised guidance.

  2. Review your SMSF trust deed and investment strategy to ensure they support borrowing.

  3. Work with your professional team, including your accountant, planner, and legal representative, to ensure everything aligns.

  4. Select a property and structure the purchase properly, with support throughout the loan approval and trust setup process.

  5. Move forward with a clear plan, knowing your SMSF is on track and your strategy is sound.

Thinking about borrowing within your SMSF?

Contact Nahil at Citywide LPI Bankstown for expert advice, tailored lending support, and a partner who understands how to make SMSF borrowing work the right way.

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