Property Finance for SMSF Trustees

SMSF property purchases use a structure called a limited recourse borrowing arrangement (LRBA). Under an LRBA, the SMSF borrows from a lender, but the loan is secured only against the specific property being purchased — not against the SMSF’s other assets. If the SMSF defaults, the lender can only take the property, not pursue other super fund assets.

The property itself is held by a separate bare trust (also called a custodian trust or holding trust) for the duration of the loan. The bare trust holds legal title; the SMSF holds beneficial ownership. Once the loan is fully repaid, the title can be transferred to the SMSF directly. The bare trust’s corporate trustee is a Pty Ltd company set up for that single purpose.

The lender pool for SMSF lending is narrower than for personal residential or commercial lending. The major banks have largely exited SMSF residential lending, leaving the market to specialist non-bank lenders and a small number of mainstream lenders still operating in the space. Pricing is typically 0.50% to 1.50% above equivalent personal residential rates, reflecting the smaller lender pool and the additional structural complexity.

Compliance matters more than usual. SMSF borrowing has specific rules under the Superannuation Industry (Supervision) Act, ATO regulatory guidance and your SMSF’s investment strategy. The property has to be a single acquirable asset, the borrowing has to be properly documented, and the trust deed has to permit borrowing. These aren’t barriers — they’re standard — but they need to be done correctly.

We start by confirming the basics: does your SMSF’s trust deed permit borrowing under an LRBA? Does the investment strategy support the proposed property purchase? Is the bare trust structure (custodian Pty Ltd) set up or to be set up? Are the trustees’ personal positions strong enough to provide the personal guarantees most SMSF lenders require? These are checkbox questions but they need answers before we apply.

We narrow the lender shortlist carefully. With only a handful of lenders actively writing SMSF loans, we focus on the ones whose criteria match your specific deal — the LVR they support (typically 70%–80%), the rate they offer, their position on the asset type and location, and their assessment of the SMSF trustees’ personal income (if a ‘beneficial gearing’ arrangement is being used).

We work hand-in-glove with your accountant and SMSF auditor. They handle the SIS compliance and the fund’s investment strategy; we handle the lending structure and execution. The two sides need to align — for example, the property purchase price has to leave the fund with sufficient liquidity to pay loan repayments and member benefits, and the rent must be at arm’s length market value. We make sure the lending side fits within your accountant’s parameters.