Buying Property With Super: What to Know Before You Start
The rules, the costs and the questions to ask first
Buying property with super can look like a shortcut to a bigger retirement. It can also be one of the easiest ways to get into trouble, because a self-managed super fund (SMSF) doesn’t play by the same rules as buying in your own name.
This guide covers what to know about SMSF property before you start: the rules that shape which property you can buy, what it costs, and who should be advising you. It’s general information, and the professionals who set up and run your fund should always have the last word.
How SMSF property works in plain terms
With an SMSF, the fund buys the property, not you personally. That changes the test. When you buy in your own name, you ask whether the property suits your goals and whether you can afford it. With an SMSF there’s a third question: is this purchase allowed at all?
The fund exists to provide retirement benefits to its members, and ASIC’s Moneysmart says that’s what the property has to do, and nothing else. It shapes almost every decision that follows.
The rules that shape the property you buy
The sole purpose test. The property must provide retirement benefits. Moneysmart says you, your relatives and other related parties can’t live in it or rent it.
Buying from related parties. The ATO says an SMSF generally can’t acquire assets from a related party, with an exception for business real property. Moneysmart says the same applies to residential property bought from a member or related party.
Arm’s length leasing. Where a fund property is leased to a related party, the ATO says the lease must be on arm’s length terms and reflect market value.
Borrowing. Borrowing inside super follows a limited recourse arrangement, with the property held in a separate trust, according to the ATO. Moneysmart warns it can mean higher interest rates and fees.
One asset at a time. Moneysmart says an SMSF can only purchase a single asset, such as one residential or commercial property, under a limited recourse arrangement.
What it costs
Moneysmart lists advice fees, charged upfront or on an ongoing basis, plus the costs of setting up and running the fund, and of the property and the loan. It also notes these costs often come out of your super and reduce your overall balance.
That’s why the first question isn’t which property to buy. It’s whether an SMSF makes sense for your balance and your situation, and that’s a question for a licensed adviser.
Cash flow and liquidity
Moneysmart says your SMSF must meet loan repayments and property expenses, possibly alongside pension payments or other withdrawals. It also says you may need to sell the property to fund a large withdrawal, such as a death benefit.
In practice, that means a vacancy or a rate rise lands on the fund’s cash flow, not just your own. A property that suits the fund needs to hold up without relying on the next contribution.
The investment strategy
The ATO says an SMSF’s investment strategy should be in writing and tailored to the fund’s circumstances. It should address how the investments meet members’ retirement objectives, and cover risk and likely return, diversification, liquidity and insurance. It advises reviewing the strategy at least annually and documenting that review.
Moneysmart adds that you should consider whether borrowing to invest in property suits the strategy and risk profile of your SMSF. The strategy comes first. The property answers to it.
Who can advise you, and who can’t
Moneysmart says anyone who gives advice on an SMSF must hold an Australian financial services (AFS) licence, or be authorised by a licensee. That includes property developers who give advice about setting up an SMSF.
Be careful with any package that bundles an SMSF set-up with a property purchase, particularly where someone earns a referral fee from the sale. Get licensed advice first, then find the property.
Questions to ask before you start
If you’re asking how to buy property with super fund money, start here, before you look at a single listing.
- Is an SMSF right for me at all? Ask a licensed adviser.
- What will it cost each year compared with my balance?
- Will the fund borrow, and can it cope with higher repayments?
- What happens if the property sits vacant?
- Does the investment strategy support a property purchase?
- Could the fund cope with a large withdrawal?
Where a buyer’s agent fits
We’re a buyer’s agent, not a financial adviser, accountant or SMSF administrator. We don’t recommend whether you should set up an SMSF. What we do is take the brief your advisers have settled on and find the property that fits it, from suburb through to negotiation.
You can see how that works on our SMSF Property Investment page.
Got a question? Get your answer
Can my SMSF buy a property I can live in?
No. Moneysmart says you, your relatives and other related parties can’t live in a property held by your SMSF or rent it. It must provide retirement benefits only.
Can an SMSF borrow to buy property?
Yes, through a limited recourse borrowing arrangement, with the property held in a separate trust. Loans can cost more, and repayments need careful planning. Your adviser and broker should lead on this.
Can an SMSF buy commercial property?
Yes. Moneysmart says SMSFs can hold residential and commercial property under strict conditions, and the ATO notes an exception for business real property. Speak to a licensed adviser first.
Do I need a financial adviser to buy property in an SMSF?
Anyone who gives SMSF advice must hold an AFS licence or be authorised by a licensee, so yes, advice on whether and how to use an SMSF should come from a licensed adviser.
How much does it cost to buy property through an SMSF?
Costs include advice fees, set-up and running costs, property costs and loan costs, according to Moneysmart, and they often come out of your super. Get figures from your adviser and accountant.
Ready to talk about your fund?
Get the rules right first, then find the right property. Let’s talk about what your fund needs.