Investing in property through a self-managed superannuation fund (SMSF) is growing among Australians looking for more control, flexibility and potential growth in retirement.  

As of the June 2025 quarter, property (both residential and non-residential) accounted for 15.4% of all SMSF assets, according to the Australian Taxation Office (ATO). While not the highest asset class, the value of property held in SMSFs grew 5% year-on-year – from $154.1 billion in June 2024 to $161.9 billion in June 2025. 

Over the same 12-month period, overall SMSF assets grew by around 5.5%, showing that property continues to hold steady as a core part of many funds’ investment mix.   

How does SMSF property investment work? 

With property values in SMSFs on the rise, it’s no surprise more trustees are exploring this strategy. While rental income and capital growth are obvious drawcards, SMSF property investment also offers other important benefits: 

• Control: Trustees decide exactly how their super is invested, rather than leaving it to a retail or industry fund.  
• Diversification: Property can balance a portfolio that’s otherwise heavily weighted towards shares, cash or other assets.  
• Tax concessions: Rental income is generally taxed at 15%, and capital gains can be reduced to 10% if the asset is held for more than 12 months. In retirement phase, both rental income and capital gains may be tax-free. As with all tax-related decisions, it’s important to speak with a qualified tax adviser to understand how the rules apply to your personal circumstances.  
• Business benefits: For commercial property, trustees can lease premises back to their own business at market rates, keeping rent payments within their super fund. 
  
  But how does it work? 

An SMSF can purchase both residential and commercial property as an investment asset. SMSFs can borrow to purchase property through what’s known as a limited recourse borrowing arrangement (LRBA). This is a complex structure with strict compliance rules, so it’s essential to seek advice from an SMSF lending specialist before proceeding. 

This structure means that, if your fund defaults on a loan repayment, the lender’s rights are limited to the property itself – protecting other assets in the fund.  

The SMSF investment property must be held in a trust and the income it generates, such as rent, goes back into the SMSF to help repay the loan. 

Importantly, the property must meet the ATO’s “sole purpose test”, which dictates that it must be for the benefit of members’ retirement savings. That means you or any members or relatives of your SMSF cannot live in it or rent it if it’s residential. For commercial property, such as offices or warehouses, leasing it to you or a related business is allowed – but it must be at full market rent and properly documented. 

To avoid breaching the rules, it’s strongly recommended to check the ATO’s guidance and work closely with your SMSF accountant or legal adviser. 

Who does SMSF property investment work for? 

SMSF property investment isn’t for everyone. Because super funds can only take out LRBAs, lenders tend to apply conservative lending limits.  

Residential SMSF loans typically cap loan-to-value ratios (LVRs) at 80%, while commercial loans are usually 65 to 70%. That means most borrowers need a deposit of 20 to 35% of the property’s value upfront, depending on the type of property and lender requirements. This generally suits those with larger super balances. 

SMSF property investment is also suited for funds that can comfortably service the loan repayments and other expenses (like rates and maintenance). This is assessed based on the fund’s contributions and projected rental income. 

It can also be a good strategy for business owners. If your SMSF owns your commercial premises, the business pays rent directly to the fund at market rates. This not only builds retirement savings but also means your rent dollars are working for you, rather than for an external landlord. 

Finally, as property investment in general is a long-term strategy, SMSF property purchases suit trustees with a medium- to long-term plan who are comfortable locking up capital for several years.  

What are the key factors to watch out for in SMSF property investment? 

There are several benefits to SMSF property investment, including tax concessions, rental income and long-term capital growth. But there are also risks to be aware of, including: 

• • Non-arm’s length income (NALI): If any income is not on commercial terms – for example, if a related party pays below-market rent – the entire income from the asset can be taxed at the highest marginal rate of 45%. 
  • Other compliance hurdles: The rules around LRBAs, bare trusts and the sole purpose test are strict. Getting it wrong can lead to costly penalties from the ATO. 
  • Liquidity shortfalls: Funds must have enough cash to cover loan repayments, property expenses and unexpected costs. 
  • High upfront deposits: Lenders often require substantial deposits.  
  • Market and property risks: Property values and rental income can fluctuate, impacting fund performance and retirement outcomes.  
  • Ongoing costs: Legal fees, lender reviews and maintenance need to be budgeted carefully.
    
    For these reasons, it’s important to work with a team of trusted professionals, including a specialist finance broker who understands the world of SMSF lending. Other advisers, like your accountant, can ensure the investment fits within your fund’s compliance framework and overall retirement strategy. 

Thinking about investing in property through your SMSF? The specialist brokers at Finance Advisory Co can help you navigate the lending process. Contact me by calling 0426 236 007 or emailing ben@finad.com.au. 

 

Credit Representative 541104 is authorised under Australian Credit Licence 389328.  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.